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Are anomalies still anomalous? An examination of momentum strategies in four financial markets

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Author Info
Wang, Daxue () (IESE Business School)
Abstract

In this paper we test the profitability of momentum strategies in the United Kingdom, Germany, Japan and China over the period 1991 to 2006 and sub-periods. Both RSS (Relative Strength Strategies) and WRSS (Weighted Relative Strength Strategies) are used to form the momentum portfolios. We find that the United Kingdom and Germany exhibit rather stable medium-term return continuation for both RSS and WRSS over the entire sample period and sub-periods, while Japan shows a medium-term return reversal over the sub-period 1991-1998. For China we report momentum profits over the period 1995-2006 and the sub-period 2001-2006 with RSS. Furthermore, we use the results of RSS to check the influence of risk factors and transaction costs on the momentum returns, as well as calendar effects and other characteristics of momentum portfolios reported in the literature. With the results of WRSS, we examine the relative importance of time-series predictability and cross-sectional variation in accounting for the profits of momentum strategies.

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Paper provided by IESE Business School in its series IESE Research Papers with number D/775.

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Length: 27 pages
Date of creation: 03 Dec 2008
Date of revision:
Handle: RePEc:ebg:iesewp:d-0775

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Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
Web page: http://www.iese.edu/
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Related research
Keywords: Momentum Strategy; Time-Series Predictable Components; Cross-Sectional Variation;

Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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    Other versions:
  2. David Hirshleifer & Tyler Shumway, 2003. "Good Day Sunshine: Stock Returns and the Weather," Journal of Finance, American Finance Association, vol. 58(3), pages 1009-1032, 06. [Downloadable!] (restricted)
    Other versions:
  3. Conrad, Jennifer & Kaul, Gautam, 1998. "An Anatomy of Trading Strategies," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 11(3), pages 489-519.
  4. 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. [Downloadable!] (restricted)
  5. Chan, Louis K C & Jegadeesh, Narasimhan & Lakonishok, Josef, 1996. " Momentum Strategies," Journal of Finance, American Finance Association, vol. 51(5), pages 1681-1713, December. [Downloadable!] (restricted)
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  7. Lo, Andrew W & MacKinlay, A Craig, 1990. "When Are Contrarian Profits Due to Stock Market Overreaction?," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 3(2), pages 175-205. [Downloadable!] (restricted)
    Other versions:
  8. 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. [Downloadable!] (restricted)
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  10. Fama, Eugene F & French, Kenneth R, 1996. " Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March. [Downloadable!] (restricted)
  11. De Bondt, Werner F M & Thaler, Richard, 1985. " Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July. [Downloadable!] (restricted)
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