Analysis of Business Week hot-growth stocks: Momentum and fundamental investment approaches

Abstract

This paper extends Bauman et al's (2002) study, and investigates the risk-adjusted returns for the first-timers and repeaters of the Business Week hot-growth stocks. Chan et al's (1996) short-term 6-month momentum model provides significant returns for the first-timers as well as for stocks that had already appeared on the list at least once, the ‘repeaters’. On the other hand, Mohanram's (2005) fundamental model provides significant returns for the repeaters only. A portfolio formed by purchasing the repeaters and short selling the first-timers generates significant returns in 10 out of 12 months after publication. We conclude that profitable long/short portfolios can be implemented on these growth stocks in addition to the short-only strategy as implied in Bauman et al (2002).