Momentum strategies: evidence from the Pacific Basin Stock Markets

Abstract

There is some evidence of medium-term return continuation effect in our sample of six Asian stock markets. An unrestricted momentum strategy does not yield significant momentum returns due to the high volatility of returns in these emerging markets A country neutral strategy that fully invests in all countries generates a statistically significant excess return of 0.37 percent per month over a six-month holding period, before transaction costs. However, these excess return disappear when we control for firm size effect Further analysis shows that higher price momentum is observed for less diversified portfolios consisting of firms with small market capitalization or high volume of trade. The evidence in the paper questions the pervasiveness of momentum strategies, especially in emerging markets.