Is Momentum Due to Data-snooping?
This paper explores the profitability of momentum strategies, by investigating if a momentum strategy is superior to a benchmark model once the effects of data-snooping have been accounted for. Two data sets are considered. The first set of data consists of US stocks and the second one consists of Swedish stocks. For the US data strong evidence is found of a momentum effect and hence the hypothesis of weak market efficiency is rejected. Splitting the sample in two parts, it is found that the overall significance is driven by events in the earlier part of the sample. The results for the Swedish data indicate that momentum strategies based on individual stocks generate significant profits. A very weak or no momentum effect can be found when stocks are sorted into portfolios. Finally, and perhaps most importantly, results show that data-snooping bias can be very substantial. Neglecting the problem would lead to very different conclusions.
Volume (Year): 13 (2007)
Issue (Month): 4 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/REJF20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/REJF20|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- K. Geert Rouwenhorst, 1998.
"International Momentum Strategies,"
Journal of Finance,
American Finance Association, vol. 53(1), pages 267-284, 02.
- Conrad, Jennifer & Kaul, Gautam, 1998. "An Anatomy of Trading Strategies," Review of Financial Studies, Society for Financial Studies, vol. 11(3), pages 489-519.
- Tobias J. Moskowitz & Mark Grinblatt, .
"Do Industries Explain Momentum?,"
CRSP working papers
480, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Lo, Andrew W & MacKinlay, A Craig, 1990.
"Data-Snooping Biases in Tests of Financial Asset Pricing Models,"
Review of Financial Studies,
Society for Financial Studies, vol. 3(3), pages 431-67.
- Lo, Andrew W. (Andrew Wen-Chuan) & MacKinlay, Archie Craig, 1955-, 1989. "Data-snooping biases in tests of financial asset pricing models," Working papers 3020-89., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Andrew W. Lo & A. Craig MacKinlay, 1989. "Data-Snooping Biases in Tests of Financial Asset Pricing Models," NBER Working Papers 3001, National Bureau of Economic Research, Inc.
- Halbert White, 2000. "A Reality Check for Data Snooping," Econometrica, Econometric Society, vol. 68(5), pages 1097-1126, September.
- Jonathan Lewellen, 2002. "Momentum and Autocorrelation in Stock Returns," Review of Financial Studies, Society for Financial Studies, vol. 15(2), pages 533-564, March.
- 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.
- 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.
- Chan, Louis K C & Jegadeesh, Narasimhan & Lakonishok, Josef, 1996. " Momentum Strategies," Journal of Finance, American Finance Association, vol. 51(5), pages 1681-1713, December.
- Savin, N.E., 1984. "Multiple hypothesis testing," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 14, pages 827-879 Elsevier.
- Hansen, Peter Reinhard, 2005. "A Test for Superior Predictive Ability," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 365-380, October.
- Narasimhan Jegadeesh, 2001. "Profitability of Momentum Strategies: An Evaluation of Alternative Explanations," Journal of Finance, American Finance Association, vol. 56(2), pages 699-720, 04.
When requesting a correction, please mention this item's handle: RePEc:taf:eurjfi:v:13:y:2007:i:4:p:301-318. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.