Industry classification, industry momentum and short-term reversal

Abstract

This paper finds that the level of industry classification plays a significant role in the performance of industry momentum strategies. From 1963 to 2018, it appears that using higher levels of classification generates higher positive returns, while using granular level generates results that display short- and mid-term reversal patterns. In addition, the performance of industry momentum strategies across different levels of industry classification varies significantly over different sample periods. This is likely caused by the evolution of market structure over time. This paper highlights the influence industry classifications and market structure evolution have on the performance of industry momentum strategies.