Momentum strategies on the stock exchange of Mauritius

Purpose - The purpose of this paper is to assess the presence of the momentum effect on the Stock Exchange of Mauritius (SEM) and its implications for investors. Design/methodology/approach - Data for stock trading activities of all listed companies on the SEM from 2001 through 2009 were subjected to the Jegadeesh and Titman methodology for the selection of stocks. The stock selection is based on their returns over the past three to 12 months, with holding periods that range from three to 12 months. In addition, the Capital Asset Pricing Model is used to estimate the risk adjusted returns for momentum portfolios and the impact of the strategies are evaluated for the “bullish” ‘(high growth) and “bearish” (moderate growth) periods. Findings - The results show the existence/presence of the momentum effects on the SEM. However, the outcomes of the momentum strategies and particularly those of the winner and loser strategies are not consistently above (outperform) the effects of the Efficient Market Hypothesis. Accounting for heteroskedasticity did not alter the superiority of the Efficient Market Hypothesis. Practical implications - The implication for investors with interest in trading on the SEM, or in Africa in general, is to focus on trading strategies that are in line with the Efficient Market Hypothesis. Originality/value - The paper is a first formal attempt to fill the research gap on the momentum effect on the Mauritian equity market. The paper also contributes to the existing literature on momentum strategies in emerging markets.