IDEAS home Printed from https://ideas.repec.org/a/sae/ausman/v42y2017i2p230-251.html
   My bibliography  Save this article

Time-series and cross-sectional momentum strategies under alternative implementation strategies

Author

Listed:
  • Ron Bird

    (Paul Woolley Centre, University of Technology Sydney, Ultimo, NSW, Australia; Waikato Management School, The University of Waikato, Hamilton, New Zealand)

  • Xiaojun Gao

    (Waikato Management School, The University of Waikato, Hamilton, New Zealand)

  • Danny Yeung

    (Finance Discipline Group, University of Technology Sydney, Ultimo, NSW, Australia)

Abstract

The study compares the performance of alternative implementations of both time-series and cross-sectional momentum strategies across 24 markets. We find that over our sample period, both types of momentum strategies generate positive returns under the majority of implementations evaluated but that time-series momentum is clearly superior. An important difference between the two momentum strategies is that with time-series momentum, the number of stocks included in the winner and loser portfolios vary with the state of the market. As a consequence, cross-sectional momentum digs deeper to select winning stocks when markets are weak and deeper to select losing stocks when markets are strong. As the information in the momentum signals is concentrated in the tails of the return distribution, it is not that surprising that momentum is best implemented using time-series momentum.

Suggested Citation

  • Ron Bird & Xiaojun Gao & Danny Yeung, 2017. "Time-series and cross-sectional momentum strategies under alternative implementation strategies," Australian Journal of Management, Australian School of Business, vol. 42(2), pages 230-251, May.
    • Handle: RePEc:sae:ausman:v:42:y:2017:i:2:p:230-251
    DOI: 10.1177/0312896215619965
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0312896215619965
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0312896215619965?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Fama, Eugene F., 1998. "Market efficiency, long-term returns, and behavioral finance," Journal of Financial Economics, Elsevier, vol. 49(3), pages 283-306, September.
    2. Menkhoff, Lukas & Sarno, Lucio & Schmeling, Maik & Schrimpf, Andreas, 2012. "Currency momentum strategies," Journal of Financial Economics, Elsevier, vol. 106(3), pages 660-684.
    3. Stan Hurn & Vlad Pavlov, 2003. "Momentum in Australian Stock Returns," Australian Journal of Management, Australian School of Business, vol. 28(2), pages 141-155, September.
    4. Sheridan Titman & Matthias Hanauer, 2014. "Is Japan Different? Evidence on Momentum and Market Dynamics," International Review of Finance, International Review of Finance Ltd., vol. 14(1), pages 141-160, March.
    5. Narasimhan Jegadeesh, 2002. "Cross-Sectional and Time-Series Determinants of Momentum Returns," Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 143-157, March.
    6. Tobias J. Moskowitz & Mark Grinblatt, 1999. "Do Industries Explain Momentum?," Journal of Finance, American Finance Association, vol. 54(4), pages 1249-1290, August.
    7. Michael J. Cooper & Roberto C. Gutierrez & Allaudeen Hameed, 2004. "Market States and Momentum," Journal of Finance, American Finance Association, vol. 59(3), pages 1345-1365, June.
    8. Barberis, Nicholas & Shleifer, Andrei & Vishny, Robert, 1998. "A model of investor sentiment," Journal of Financial Economics, Elsevier, vol. 49(3), pages 307-343, September.
    9. Ron Bird & Xue-Zhong (Tony) He & Satish Thosar & Paul Woolley, 2005. "The case for market inefficiency: Investment style and market pricing," Journal of Asset Management, Palgrave Macmillan, vol. 5(6), pages 365-388, April.
    10. Charles M.C. Lee & Bhaskaran Swaminathan, 2000. "Price Momentum and Trading Volume," Journal of Finance, American Finance Association, vol. 55(5), pages 2017-2069, October.
    11. David McLean, R. & Pontiff, Jeffrey & Watanabe, Akiko, 2009. "Share issuance and cross-sectional returns: International evidence," Journal of Financial Economics, Elsevier, vol. 94(1), pages 1-17, October.
    12. Ron Bird & Lorenzo Casavecchia, 2006. "Insights into the Momentum Life Cycle for European Stocks," Published Paper Series 2006-3, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    13. K. Geert Rouwenhorst, 1999. "Local Return Factors and Turnover in Emerging Stock Markets," Journal of Finance, American Finance Association, vol. 54(4), pages 1439-1464, August.
    14. Harrison Hong & Jeremy C. Stein, 1999. "A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets," Journal of Finance, American Finance Association, vol. 54(6), pages 2143-2184, December.
    15. Thomas J. George & Chuan-Yang Hwang, 2004. "The 52-Week High and Momentum Investing," Journal of Finance, American Finance Association, vol. 59(5), pages 2145-2176, October.
    16. Andy C.W. Chui & Sheridan Titman & K.C. John Wei, 2010. "Individualism and Momentum around the World," Journal of Finance, American Finance Association, vol. 65(1), pages 361-392, February.
    17. Demir, Isabelle & Muthuswamy, Jay & Walter, Terry, 2004. "Momentum returns in Australian equities: The influences of size, risk, liquidity and return computation," Pacific-Basin Finance Journal, Elsevier, vol. 12(2), pages 143-158, April.
    18. Gupta, Kartick & Locke, Stuart & Scrimgeour, Frank, 2010. "International comparison of returns from conventional, industrial and 52-week high momentum strategies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(4), pages 423-435, October.
    19. Soosung Hwang & Alexandre Rubesam, 2015. "The disappearance of momentum," The European Journal of Finance, Taylor & Francis Journals, vol. 21(7), pages 584-607, May.
    20. Clifford S. Asness & Tobias J. Moskowitz & Lasse Heje Pedersen, 2013. "Value and Momentum Everywhere," Journal of Finance, American Finance Association, vol. 68(3), pages 929-985, June.
    21. Clive Gaunt & Philip Gray, 2003. "Short-Term Autocorrelation in Australian Equities," Australian Journal of Management, Australian School of Business, vol. 28(1), pages 97-117, June.
    22. Ozgur S. Ince & R. Burt Porter, 2006. "Individual Equity Return Data From Thomson Datastream: Handle With Care!," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 29(4), pages 463-479, December.
    23. Allaudeen Hameed & Yuanto Kusnadi, 2002. "Momentum Strategies: Evidence from Pacific Basin Stock Markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 25(3), pages 383-397, September.
    24. Narasimhan Jegadeesh & Sheridan Titman, 2001. "Profitability of Momentum Strategies: An Evaluation of Alternative Explanations," Journal of Finance, American Finance Association, vol. 56(2), pages 699-720, April.
    25. K. Geert Rouwenhorst, 1998. "International Momentum Strategies," Journal of Finance, American Finance Association, vol. 53(1), pages 267-284, February.
    26. Moskowitz, Tobias J. & Ooi, Yao Hua & Pedersen, Lasse Heje, 2012. "Time series momentum," Journal of Financial Economics, Elsevier, vol. 104(2), pages 228-250.
    27. Tim Brailsford & Clive Gaunt & Michael A O’Brien, 2012. "Size and book-to-market factors in Australia," Australian Journal of Management, Australian School of Business, vol. 37(2), pages 261-281, August.
    28. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    29. Chiarella, Carl & He, Xue-Zhong & Hommes, Cars, 2006. "Moving average rules as a source of market instability," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 370(1), pages 12-17.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Simarjeet Singh & Nidhi Walia, 2020. "Time-Series And Cross-Sectional Momentum In Indian Stock Market," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 9(3), pages 161-176.
    2. Milan Fičura, 2019. "Forecasting Cross-Section of Stock Returns with Realised Moments," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2019(2), pages 71-84.
    3. Pirie, Scott & Chan, Ronald King To, 2018. "A two-stage study of momentum investing in Asia: A case of cognitive dissonance?," Research in International Business and Finance, Elsevier, vol. 44(C), pages 340-349.
    4. Enrique Benavides Rosales, 2017. "Time-series and cross-sectional momentum and contrarian strategies within the commodity futures markets," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1339772-133, January.
    5. Simarjeet Singh & Nidhi Walia & Stelios Bekiros & Arushi Gupta & Jigyasu Kumar & Amar Kumar Mishra, 2022. "Risk-managed time-series momentum: an emerging economy experience," Journal of Economics, Finance and Administrative Science, Emerald Group Publishing Limited, vol. 27(54), pages 328-343, November.
    6. Papailias, Fotis & Liu, Jiadong & Thomakos, Dimitrios D., 2021. "Return signal momentum," Journal of Banking & Finance, Elsevier, vol. 124(C).
    7. Yang Gao & Henry Leung & Stephen Satchell, 2018. "A critique of momentum strategies," Journal of Asset Management, Palgrave Macmillan, vol. 19(5), pages 341-350, September.
    8. Simarjeet Singh & Nidhi Walia, 2022. "Momentum investing: a systematic literature review and bibliometric analysis," Management Review Quarterly, Springer, vol. 72(1), pages 87-113, February.
    9. Vo, Xuan Vinh & Truong, Quang Binh, 2018. "Does momentum work? Evidence from Vietnam stock market," Journal of Behavioral and Experimental Finance, Elsevier, vol. 17(C), pages 10-15.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Simarjeet Singh & Nidhi Walia, 2022. "Momentum investing: a systematic literature review and bibliometric analysis," Management Review Quarterly, Springer, vol. 72(1), pages 87-113, February.
    2. Martin H. Schmidt, 2017. "Trading strategies based on past returns: evidence from Germany," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 31(2), pages 201-256, May.
    3. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, November.
    4. Hong-Yi Chen & Sheng-Syan Chen & Chin-Wen Hsin & Cheng Few Lee, 2020. "Does Revenue Momentum Drive or Ride Earnings or Price Momentum?," World Scientific Book Chapters, in: Cheng Few Lee & John C Lee (ed.), HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING, chapter 94, pages 3263-3318, World Scientific Publishing Co. Pte. Ltd..
    5. Liu, Ming & Liu, Qianqiu & Ma, Tongshu, 2011. "The 52-week high momentum strategy in international stock markets," Journal of International Money and Finance, Elsevier, vol. 30(1), pages 180-204, February.
    6. Gao, Ya & Guo, Bin & Xiong, Xiong, 2021. "Signed momentum in the Chinese stock market," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    7. Qiang Gong & Ming Liu & Qianqiu Liu, 2011. "Is Momentum Really Momentum? International Evidence," Working Papers EMS_2011_22, Research Institute, International University of Japan.
    8. Hurst, Gareth & Docherty, Paul, 2015. "Trend salience, investor behaviours and momentum profitability," Pacific-Basin Finance Journal, Elsevier, vol. 35(PB), pages 471-484.
    9. Li, Bob & Ee, Mong Shan & Rashid, Mamunur, 2016. "Is momentum trading profitable from Shari'ah compliant stocks?," Review of Financial Economics, Elsevier, vol. 31(C), pages 56-63.
    10. Minh Phuong Doan & Vitali Alexeev & Robert Brooks, 2016. "Concurrent momentum and contrarian strategies in the Australian stock market," Australian Journal of Management, Australian School of Business, vol. 41(1), pages 77-106, February.
    11. Julio Lobao & Joao Meira Fernandes, 2017. "The 52-Week High and Momentum Investing: Implications for Asset Pricing Models," Annals of Economics and Finance, Society for AEF, vol. 18(2), pages 349-376, November.
    12. repec:cuf:journl:y:2017:v:18:i:1:lobao is not listed on IDEAS
    13. Sagi, Jacob S. & Seasholes, Mark S., 2007. "Firm-specific attributes and the cross-section of momentum," Journal of Financial Economics, Elsevier, vol. 84(2), pages 389-434, May.
    14. Hao, Ying & Chou, Robin K. & Ko, Kuan-Cheng & Yang, Nien-Tzu, 2018. "The 52-week high, momentum, and investor sentiment," International Review of Financial Analysis, Elsevier, vol. 57(C), pages 167-183.
    15. Bianchi, Robert J. & Drew, Michael E. & Fan, John Hua, 2016. "Commodities momentum: A behavioral perspective," Journal of Banking & Finance, Elsevier, vol. 72(C), pages 133-150.
    16. Gong, Qiang & Liu, Ming & Liu, Qianqiu, 2015. "Momentum is really short-term momentum," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 169-182.
    17. Mao, Mike Qinghao & Wei, K.C. John, 2014. "Price and earnings momentum: An explanation using return decomposition," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 332-351.
    18. Docherty, Paul & Hurst, Gareth, 2018. "Return dispersion and conditional momentum returns: International evidence," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 263-278.
    19. Jaehyung Choi, 2014. "Maximum drawdown, recovery, and momentum," Papers 1403.8125, arXiv.org, revised Sep 2021.
    20. Galariotis, Emilios C., 2010. "What should we know about momentum investing? The case of the Australian Security Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 18(4), pages 369-389, September.
    21. Jaehyung Choi & Young Shin Kim & Ivan Mitov, 2014. "Reward-risk momentum strategies using classical tempered stable distribution," Papers 1403.6093, arXiv.org, revised Jun 2015.

    More about this item

    Keywords

    Cross-sectional momentum; implementation; investment performance; market conditions; time-series momentum;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:ausman:v:42:y:2017:i:2:p:230-251. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.agsm.edu.au .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.