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Momentum anomaly: evidence from the Indian stock market

Momentum anomaly: evidence from the Indian stock market PurposeThe purpose of this paper is to provide insights into the profitability of momentum strategies in the Indian stock market. This study further evaluates whether the momentum effect is a manifestation of size, value or an illiquidity effect.Design/methodology/approachMonthly stock return data of 470 BSE listed stocks over the sample period from January 1997 to March 2013 were used to create extreme portfolios (winner and loser). The returns of extreme portfolios were evaluated using t-statistics and a risk-adjusted measure. Further checks were imposed by controlling for other potential sources of risk including size, value and illiquidity.FindingsThe study provides support in favor of momentum profitability in the Indian stock market. In contrast to the literature, momentum profitability is driven by winning stocks, and hence, buying past winning stocks generates higher returns than shorting loosing stocks in the Indian stock market. Strong momentum profits were observed even after controlling for size, value and trading volume of stocks. This suggests that the momentum effect in the Indian stock market is not a manifestation of small size effect, value effect or an illiquidity effect.Practical implicationsFrom the practitioner’s perspective, the study indicates that a momentum-based investment strategy in the short run is still persistent and can generate potential profits in the Indian stock market.Originality/valueThere is little empirical evidence on the momentum profitability, especially in the Indian stock market. The study contributes toward the literature by analyzing the momentum profitability even after controlling for size, value and an illiquidity effect. Some aspects of the momentum effect were observed to be dissimilar from those observed in literature for the USA and other countries. Such findings justify the need for testing the momentum profitability in stock markets other than the USA. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Advances in Management Research Emerald Publishing

Momentum anomaly: evidence from the Indian stock market

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0972-7981
DOI
10.1108/JAMR-11-2015-0081
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to provide insights into the profitability of momentum strategies in the Indian stock market. This study further evaluates whether the momentum effect is a manifestation of size, value or an illiquidity effect.Design/methodology/approachMonthly stock return data of 470 BSE listed stocks over the sample period from January 1997 to March 2013 were used to create extreme portfolios (winner and loser). The returns of extreme portfolios were evaluated using t-statistics and a risk-adjusted measure. Further checks were imposed by controlling for other potential sources of risk including size, value and illiquidity.FindingsThe study provides support in favor of momentum profitability in the Indian stock market. In contrast to the literature, momentum profitability is driven by winning stocks, and hence, buying past winning stocks generates higher returns than shorting loosing stocks in the Indian stock market. Strong momentum profits were observed even after controlling for size, value and trading volume of stocks. This suggests that the momentum effect in the Indian stock market is not a manifestation of small size effect, value effect or an illiquidity effect.Practical implicationsFrom the practitioner’s perspective, the study indicates that a momentum-based investment strategy in the short run is still persistent and can generate potential profits in the Indian stock market.Originality/valueThere is little empirical evidence on the momentum profitability, especially in the Indian stock market. The study contributes toward the literature by analyzing the momentum profitability even after controlling for size, value and an illiquidity effect. Some aspects of the momentum effect were observed to be dissimilar from those observed in literature for the USA and other countries. Such findings justify the need for testing the momentum profitability in stock markets other than the USA.

Journal

Journal of Advances in Management ResearchEmerald Publishing

Published: Feb 6, 2017

References