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Why is there no momentum in the Taiwan stock market?

  • Du, Ding
  • Huang, Zhaodan
  • Liao, Bih-shuang
Registered author(s):

    Momentum strategies usually do not produce significant profits in emerging stock markets. Chui, Titman, and Wei [Chui, A. C. W., Titman, S., & Wei, K. C. J. (2000). Momentum, legal systems and ownership structure: An analysis of Asian stock markets. Working paper, Hong Kong Polytechnic University, Chui, A. C. W., Titman, S., & Wei, K. C. J. (2006). Individualism and momentum around the World. Working Paper, Hong Kong Polytechnic University] argue that the lack of profitability is due to cultural differences. In this paper, we look at one of the largest emerging markets, the Taiwan stock market. We find that DOWN markets occur more frequently and momentum profits are more negative following DOWN markets in Taiwan than in the US. Taken together, our findings suggest that the lack of profits from momentum strategies in emerging markets may be due more to the state-dependence of momentum discovered by Cooper, Gutierrez, and Hameed [Cooper, M. J., Gutierrez R. C., & Hameed, A. (2004). Market states and momentum. Journal of Finance, 59, 1345-1365] rather than to cultural differences.

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    Article provided by Elsevier in its journal Journal of Economics and Business.

    Volume (Year): 61 (2009)
    Issue (Month): 2 ()
    Pages: 140-152

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    Handle: RePEc:eee:jebusi:v:61:y:2009:i:2:p:140-152
    Contact details of provider: Web page: http://www.elsevier.com/locate/jeconbus

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    1. Tarun Chordia & Lakshmanan Shivakumar, 2002. "Momentum, Business Cycle, and Time-varying Expected Returns," Journal of Finance, American Finance Association, vol. 57(2), pages 985-1019, 04.
    2. 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, 08.
    3. 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.
    4. Chan, Kalok & Hameed, Allaudeen, 2006. "Stock price synchronicity and analyst coverage in emerging markets," Journal of Financial Economics, Elsevier, vol. 80(1), pages 115-147, April.
    5. 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.
    6. K. Rouwenhorst, 1996. "International Momentum Strategies," Yale School of Management Working Papers ysm36, Yale School of Management, revised 01 Feb 2008.
    7. Du, Ding & Denning, Karen, 2005. "Industry momentum and common factors," Finance Research Letters, Elsevier, vol. 2(3), pages 107-124, September.
    8. 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.
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    15. 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.
    16. Harrison Hong & Terence Lim & Jeremy C. Stein, 1998. "Bad News Travels Slowly: Size, Analyst Coverage and the Profitability of Momentum Strategies," NBER Working Papers 6553, National Bureau of Economic Research, Inc.
    17. Balvers, Ronald J. & Wu, Yangru, 2006. "Momentum and mean reversion across national equity markets," Journal of Empirical Finance, Elsevier, vol. 13(1), pages 24-48, January.
    18. Tobias J. Moskowitz & Mark Grinblatt, 1999. "Do Industries Explain Momentum?," Journal of Finance, American Finance Association, vol. 54(4), pages 1249-1290, 08.
    19. Conrad, Jennifer & Kaul, Gautam, 1988. "Time-Variation in Expected Returns," The Journal of Business, University of Chicago Press, vol. 61(4), pages 409-25, October.
    20. John M. Griffin & Xiuqing Ji & J. Spencer Martin, 2003. "Momentum Investing and Business Cycle Risk: Evidence from Pole to Pole," Journal of Finance, American Finance Association, vol. 58(6), pages 2515-2547, December.
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