Abstract
In the Taiwanese stock market, this paper discovers a significant outperformance of volume-based price momentum strategies relative to pure price momentum strategies over the holding period of 3–5 years. Specifically, hedge portfolios that are longing low-volume winners and shorting high-volume losers generate superior returns than pure price hedge portfolios of buying winners and selling losers. Moreover, the opposed strategies of buying high-volume winners and selling low-volume losers systematically underperform the pure price momentum strategies. Both results are consistent with those from US. More importantly, both outperformance and underperformance are robust to adjustment of industry effects, book-to-market ratio, and firm size. Furthermore, firm size seems to subsume a larger portion of superior and inferior performances than the other two control factors because the economic magnitude of outperformance and underperformance deteriorates more intensively when it is conditional on firm size than on the other two factors.
Highlights
Prior research on trading volume literature generally accepts the notion that trading volume is proxy for liquidity; higher trading volume forecasts lower future expected returns due to better liquidity
The reason is that cumulative differential returns conditional on firm size at the end of year five is smaller in absolute economic magnitude than those conditional on industry effects or book-to-market ratio
Prior empirical evidence generally found an absence of price momentum in the Taiwanese stock market
Summary
Prior research on trading volume literature generally accepts the notion that trading volume is proxy for liquidity; higher trading volume forecasts lower future expected returns due to better liquidity (for example, Amihud and Mendelson, 1986; Campbell, Grossman, and Wang, 1993; Conrad, Hameed, and Niden, 1994; Datar, Naik, and Rodcliffe, 1998). In accordance with the predictions, they found investment strategies of buying low-(high-)volume winners and selling high- (low-)volume losers generate higher (lower) profitability than pure price momentum strategies based solely on past prices They named the better (worse) performance strategies as early-(late-)stage price momentum strategies. Ding, McInish, and Wongchoti (2008) investigated the predictions of the MLC over 2–8 weeks after formation of portfolios, which is constructed from prior one-week data They found some extent of support in Hong Kong (which showed strongest results), Japan, Malaysia, Thailand and Singapore, but not in Korea and Taiwan. Shawn, Dawei, and Benjamin (2013) found weak price momentum in the Philippines and weak improvement of hedge portfolios of price momentum conditional on trading volume Their results are for the intermediate term, i.e. 3–12 months and did not consider the long-term effects.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
