PurposeThe purpose of this paper is to evaluate if there are any momentum patterns in stock and sectoral returns and if they can be explained by the risk factors.Design/methodology/approachThe methodology involves portfolio generation based on company characteristics and short‐term prior return (six to 12 months). The characteristic‐sorted portfolios are then regressed on risk factors using one‐factor (CAPM) and multi‐factor model (Fama French model and four‐factor model involving three Fama French factors and an additional sectoral momentum factor).FindingsThe authors find momentum profits in Indian context for prior return portfolios which are stronger for 6‐6 compared to 12‐12 strategies. These momentum profits are larger for some characteristic‐sorted portfolios. Risk models such as CAPM and Fama French model fail to capture momentum profits. In fact, winner portfolios generally comprise large firm and high P/B stocks, thus defying the risk story. Some zero investment momentum‐based trading strategies do provide significant payoffs. The authors also observe momentum profits in sectoral returns. A part of stock momentum profits is captured by sectoral factor, thus implying that it may mainly be an outcome of sectoral momentum.Research limitations/implicationsThe findings are pertinent for portfolio managers and investment analysts who are continuously in pursuit of trading strategies that provide extra normal returns. From an academic point of view, the authors suggest that sectoral factor should be used in the multi‐factor framework for explaining asset returns.Originality/valueThe study contributes to the asset pricing and behavioral literature from emerging markets.

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In this paper, we examine if there are any prior return patterns for sector returns for BRICKS markets from January 1993 to February 2008. For short-term portfolio formation windows (up to 12 months), India and S.Africa report momentum behavior while South Korea reports reversals. For long-term formation windows (up to 60 months), Brazil exhibits momentum patterns which disappear for 60-12-12 strategies. India and Russia momentum patterns continue even for long-term portfolio formation windows South Korea, South Africa and China show weak reversals for long-term portfolio formation windows. We construct a sector factor based on Liu and Zhang (2008) argument that winner sector exhibit higher risk owing to stronger growth potential. We observe that a large part of prior return patterns in stock returns are absorbed by similar patterns in sector returns. Our findings shall be useful for portfolio managers and academicians with better insights about prior return patterns in sector data. The study contributes to the asset pricing and behavioral finance literature for emerging markets.

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