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Momentum in Australian style portfolios: risk or inefficiency?

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  • Howard Chan
  • Paul Docherty
  • David Gallagher

Abstract

type="main" xml:id="acfi12106-abs-0001"> Momentum strategies have been reported to be successful across a range of different markets and asset classes. Three possible explanations for momentum have been hypothesised: risk, return continuation and excessive co-movement of stock returns compared with dividends. Lewellen (2002) adds to this literature by providing evidence of strong momentum returns in style portfolios that can be explained by negative cross-serial correlation, a result which supports the excess co-movement hypothesis. We report robust evidence of style momentum in the Australian market and use the Jegadeesh and Titman (1995) return decomposition to show that this momentum strategy is predominately explained by positive autocorrelation. Our results support the return continuation hypothesis and confirm Chen and Hong's (2002) assertion that Lewellen's (2002) explanation of style momentum returns does not stand up out-of-sample.

Suggested Citation

  • Howard Chan & Paul Docherty & David Gallagher, 2016. "Momentum in Australian style portfolios: risk or inefficiency?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 56(2), pages 333-361, June.
    • Handle: RePEc:bla:acctfi:v:56:y:2016:i:2:p:333-361
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    File URL: http://hdl.handle.net/10.1111/acfi.2016.56.issue-2
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    Cited by:

    1. Nick Inglis & Bruce Vanstone & Tobias Hahn, 2019. "Modelling momentum winner/loser asymmetry: the sources of winner and loser returns in the ASX200 and S&P500," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 59(S1), pages 657-684, April.
    2. Larelle Chapple & Lien Duong & Thu Phuong Truong, 2021. "Are Friday announcements special in a continuous disclosure environment?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(S1), pages 2031-2067, April.
    3. Hoang, Khoa & Cannavan, Damien & Gaunt, Clive & Huang, Ronghong, 2019. "Is that factor just lucky? Australian evidence," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    4. Chen Su, 2021. "A comprehensive investigation into style momentum strategies in China," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 35(1), pages 101-144, March.
    5. Mardy Chiah & Philip Gharghori & Angel Zhong, 2020. "Comovement in Anomalies between the Australian and US Equity Markets," International Review of Finance, International Review of Finance Ltd., vol. 20(4), pages 1005-1017, December.

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