Do momentum strategies work? Australian evidence

Abstract

This paper investigates the profitability of momentum investment strategy and the predictive power of trading volume for equities listed in the Australian Stock Exchange. Recent research finds that momentum and trading volume appear to predict subsequent returns in U.S. market and past volume helps to reconcile intermediate-horizon "under reaction" and long-horizon "overreaction" effects. However, bulk of the evidence on this important relationship between past returns and future returns is limited to U.S. portfolios. This study provides an out of sample evidence by examining the relationship between "trading volume" (measured by the turnover ratio) and "momentum" strategies in an Australian setting. We document a strong momentum effect for the Australian market during the period 1988 through 2002 and find that momentum plays an important role in providing information about stocks. We also find that past trading volume predicts both the magnitude and persistence of price momentum.

Momentum Returns in Tehran Stock Exchange: The Influences of Size and Liquidity

“…Amihud and Mendleson (1986) evaluated the relationship between liquidity and stock returns, and concluded that since liquidity leads to increase in company return and its value, companies tend to adopt policies to increase the liquidity of their stocks. Different studies confirm the positive effect of stocks with high liquidity (or high trading volume, which is considered as a proxy of liquidity) on profitability of the momentum strategy (Lee & Swaminathan, 2000;Hameed & Kusnadi, 2002;Chui et al, 2000;Chan et al, 2000;Drew et al, 2007). In contrast, for the first time, it was shown that companies with low (high) stock trading volume achieve higher (lower) abnormal return (Datar et al, 1998).…”

Hot and Cold Strategies: Australian Evidence

“…The literature on the profitability of these trading strategies in Australia is inconclusive. For instance Lee et al (2003), Lo and Coggins (2006), Durand et al (2006) and Monagle et al (2006) demonstrated the profitability of short-term contrarian profits on the Australian market, while Hurn and Pavlov (2003), Gaunt and Gray (2003), Hodgson et al (2004), Drew et al (2004), Demir et al (2004), Benson et al (2005) and Bettman et al (2009) all reported the profitability of momentum investment strategies in the same market. Lee et al (2003), Lo and Coggins (2006), Durand et al (2006) and Monagle et al (2006) studied the Lo and MacKinlay (1990) version of the contrarian strategy and found that arbitrageurs in Australia could earn excess profits from over-reaction, prior to transaction costs.…”

Untitled

“…究所质疑 [1][2][3] ，人们发现证券市场具有分形特性 [4][5][6] ， 并由此提出分形市场假说 FMH(Fractal Market Hypothesis) [7] ， 非线性和分形理论逐渐被用到资本市场分 析中，与 EMH 不同的是，FMH 认为资产的价格变化 过程不是一个简单的随机游走过程，随机变量的变化 并不相互独立，用几何布朗运动模型描述证券市场会 存在一定的偏离，而应该用具有分形特征的布朗运动 进行描述。Narasimhan Jegadeesh 和 Sheridan Titman (1993) [8] 首次提出了资产价格的"动量"属性。Y. C. Zhang (1999) [9] …”