Between 1980 and 1995 an internationally diversified portfolio of past. Dual momentum investing details the authors own momentum investing method that combines u. The article looks at the performance of 56 momentum and contrarian strategies in commodity futures markets. The remainder of the paper is organized as follows. Our results indicate statiscally significant evidence of momentum profits. While contrarian strategies do not work, momentum strategies are found to be profitable in commodity futures markets over horizons that range from 1 to 12 months. In our earnings momentum strategies, we use three different measures of earn ings news. Pdf international momentum strategies semantic scholar. To test the conflicting implications of these theories, we examine the re. This paper examines the profitability of momentum strategies implemented on international stock market indices. Section 3 and 4 discuss the data and the various implementations of the momentum trading strategies. Timeseries momentum strategies have received increased attention after they provided again, as in previous business cycle downturns, impressive diversi. Profitable momentum trading strategies for individual investors. Currency momentum strategies lukas menkho lucio sarnoz maik schmeling andreas schrimpfx abstract we provide a broad empirical investigation of momentum strategies in foreign exchange markets.
Basic theory of momentum strategies systemic risk and. An internationally diversified portfolio of past winners outperformed a portfolio of past losers by about 1 percent per month. A stochastic dominance approach article pdf available in journal of financial markets 81. The paper, however, presents some evidence that the european and u. We nd a signi cant crosssectional spread in excess returns of up to 10% p. Profitability of momentum stragegies in the international equity markets article pdf available in journal of financial and quantitative analysis 3502. The international momentum returns are correlated with those of the united states. We study the 52week high momentum strategy in international stock markets proposed by george and hwang 2004. Some even claim that transaction costs wipe out momentum profits.
Investment policy and portfolio management international. International equity markets exhibit shortterm return continuation. Momentum trading carries with it a higher degree of volatility than most other strategies. Jan 27, 2018 time series momentum motivates trend following. The best momentum trading strategy using the best forex momentum indicator our team at trading strategy guides believes that smart trading is the way to build the best momentum trading strategy. This article explores an alternative definition of momentum that is calculated using the idiosyncratic returns from market regressions. The sharpe ratios of the strategies based on intermediate horizon past performance are more than twice as large as the sharpe ratios of the strategies based on recent past performance. Based on the optimal implementation approach for each market, the overall performance of the two momentum strategies is eroded from 2. Quantitative momentum brings momentum investing out of wall street and into the hands of individual investors.
Profitability of momentum strategies 701 ners in the holding period represent their unconditional expected rates of return and thus predict that the returns of the momentum portfolio will be positive on average in any postranking period. First, we implement the momentum strategies based on individual stock market indices. Most momentum traders use stop loss or some other risk management technique to minimize losses in a losing trade. Our first is the commonly used standardized unexpected earnings sue variable. Momentum strategies that trade industries, investment styles, international equity indices, commodities, and currencies all exhibit the same phenomena. View enhanced pdf access article on wiley online library html view. The momentum profits arise mainly from timeseries predictability in stock market indicesvery little profit comes from predictability in the currency markets. Momentum strategies in the book often focus on selecting the top 50 or the top 300 momemtum stocks and rotating trades based off which show more momentum on a month by month basis. In previous and contemporary studies of momentum strategies, possible effects of. Geert, international momentum strategies february 1997. The ranking variable used in our price momentum strategy is a stocks past compound return, extending back six months prior to portfolio formation. In this paper, we extend the analysis of momentum strategies to the global equity markets, and contribute to the literature as follows. However, there are only a small number that meet the requirements for investment that my coauthor, andrew berkin, and i establish in our book, your complete guide to factorbased investing.
Trend following and momentum strategies for global reits. This paper applies recent econometric tests of stochastic dominance hadar and russell, 1969. There are now hundreds of factors in what john cochrane famously called the zoo of factors. The 52week high momentum strategy in international stock. Profitable momentum trading strategies for individual investors bryan foltice, thomas langer finance center munster, university of munster, 48143 munster, germany. Managed futures strategies have been pursued by ctas since at least the 1970s, shortly after futures exchanges increased the number of traded contracts hurst, ooi and pedersen 2010. The international evidence is remarkably similar to findings for the u. Our stochastic dominance approach yields consistent but more general results. Such momentum and trend following combinations can deliver higher. Momentum investing is a system of buying stocks or other securities that have had high returns over the past three to twelve months, and selling those that have had poor returns over the same period while no consensus exists about the validity of this strategy, economists have trouble reconciling this phenomenon, using the efficientmarket hypothesis. We use stochastic dominance tests to distinguish between the hypothesis that there exists general asset pricing models that can explain momentum. Global momentum strategies the journal of portfolio. Momentum strategies in commodity futures markets edhec. International momentum strategies rouwenhorst 1998.
Peter james lingane, ea, cfp february 28, 2017 this is a working document. Profitability of momentum stragegies in the international. To order reprints of this article, please contact dewey palmieri at dpalmieriat or 2122243675. Not all stocks provide momentum trading set ups, and focusing on the wrong.
In his last book, quantitative value, author wes gray brought systematic value strategy from the hedge funds to the masses. If the momentum winner shows negative trend, then defer to treasury bills. Combination momentumcontrarian strategies, used to select from among 18 developed equity markets at a monthly frequency, outperform both pure momentum and pure contrarian strategies. Unfortunately for individual investors, momentum investing, as originally outlined by jegadeesh and titman 1993, assumes a zerocost trading strategy, omits various which. Managed futures strategies have been pursued by ctas since at least the 1970s, shortly after futures exchanges increased the number of.
Therefore, the lagged return of the market is the type of conditioning information that can be relevant for predicting the profitability of momentum strategies. Using the url or doi link below will ensure access to this page indefinitely. Currency momentum strategies lukas menkho lucio sarnoz maik schmeling andreas schrimpfx abstract we provide a broad empirical investigation of momentum strategies in the foreign exchange market. This strategy produces profits in 18 of the 20 markets studied, and the profits are significant in 10 markets. The international momentum returns are correlated with the u. Jul 26, 2019 the best momentum trading strategy using the best forex momentum indicator our team at trading strategy guides believes that smart trading is the way to build the best momentum trading strategy. A portfolio perspective we provide practical perspectives on momentum investing in stocks internationally. Momentum strategies to increase return and reduce risk. The authors build on the research of erb and harvey 2006 who focus on one momentum strategy. An assistant professor of finance in the zicklin school of business at baruch college of the city university of new york. Big risk, rare reward on the surface, investing strategies based on momentum are quite appealing.
Momentum strategies in commodity futures markets edhec risk. Global momentum strategies a portfolio perspective. Market states and international momentum strategies. We find that the profits of three types of momentum strategies all exist persistently during the period 1974 to 2007. Antonacci reveals how momentum investors could have achieved longrun returns nearly twice as high as the stock market over the. In this regard, we dont want to predict when the momentum will happen, but we let the market tips his hands and then react. Momentum strategies, conditional value at risk, bootstrap. International momentum strategies rouwenhorst 1998 the. The momentum profits arise mainly from timeseries predictability in stock market indices very little profit comes from predictability in the currency markets. Specifically, if the asset is classed as a momentum winner and the trend is positive, then long the position.
Our results indicate that the search for rational asset pricing explanations for the momentum effect may be a futile one. Citeseerx document details isaac councill, lee giles, pradeep teregowda. Profitability of momentum strategies in the international equity markets. Profitable momentum trading strategies for individual. Turnover tend to be high for momentum strategies, which could reduce the net returns of a momentum strategy. Between 1980 and 1995 an internationally diversified portfolio of past shortterm winners outperformed a portfolio of shortterm losers by more than one percent per month, after correcting for risk. Momentum strategies in futures markets and trendfollowing funds. Whereas a swing trader may hold a stock for days or weeks, a momentum day trader will generally buy and sell a stock within the same day. Because momentum strategies are relatively easy to implement, the results pose a challenge to our understanding of how information is incorporated into prices or, alternatively, how markets set expected returns. The focus is on intermediate momentum, meaning the last 12 months of prices. Trend following is a market directional strategy that promises convex beta and good diversification for outright long and carry portfolios as it normally performs well in protracted good and bad times alike. Griffin is an associate professor of finance in the mccombs school ofbusinew at the university of texas at austin and the whircbox visiting fellow of behavioral finance at the yale school of m,iri,igenicni. Previous studies of international momentum strategies, e. Timeseries and crosssectional momentum strategies under.
International momentum strategies wiley online library. Many papers have documented that average stock returns are related to past performance. Dec 17, 2002 the international momentum returns are correlated with those of the united states which suggests that exposure to a common factor may drive the profitability of momentum strategies. Momentum trading attempts to capitalize on market volatility. The international momentum returns are correlated with those of the united states which suggests that exposure to a common factor may drive the profitability of momentum strategies. Return continuation is present in all twelve sample countries and lasts on average for about one year. Buy stocks that have recently performed the best and avoid those that have. For nearly three decades, scientific studies have explored omentum m investing strategies and observed stable excess returns in various financial markets. Moskowitz and grinblatt 1999 document momentum for industry portfolios, asness. Section i describes the sample and documents the profitability of mediumterm international momentum strategies. Global momentum strategies the journal of portfolio management. These results are robust to two subperiods with different risk and return characteristics and survive reasonable transaction costs for international index funds.
The individual investors comprehensive guide to momentum investing. Add trend following timeseries momentum in the next step, the paper explores adding a trendfollowing rule. As a growing number of international equity funds gain access to foreign equity markets. Finding ideal trading candidates is of paramount importance. If buys and sells are not timed correctly, they may result in significant losses. Profitability of momentum strategies in the international. An associate professor of finance in the mccombs school of business at the university of texas at austin and the whitebox visiting fellow of behavioral finance at the yale school of management. Section ii shows that momentum is not restricted to stocks of a particular country or size category. Investment policy and portfolio management international momentum strategies k. The momentum effect, first documented by jegadeesh and titman 1993 refers to the tendency for portfolios of stocks that performed well. The 52week high momentum strategy in international stock markets.
In section 5, we analyse the results of both momentum strategies while section 6 provides us with the opportunity of to summarise our findings. View the full article pdf abstract using data for 2,190 stocks from 12 european countries for the 197895 period, the author finds evidence that a diversified relative strength portfolio that invests in intermediate winners and sells prior intermediate losers earns roughly 1 percent each month. Between 1980 and 1995 an internationally diversified portfolio of past shortterm winners. Whitmore, 1970 to momentum strategies implemented on international stock market indices.
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