Abstract
This study is intended to reaffirm the existence and profitability of momentum investment strategies in 40 countries around the world during the period 1996–2018. The contradictory findings of previous research on the existence and profitability of momentum strategies have raised a pertinent question on the validity of efficient market hypothesis. We documented the momentum effect in 90% of our sample countries of which 52.5% exhibited positive momentum effect while 37.5% exhibited negative momentum effect. The findings were robust to two distinct sub-period analyses. The clear rejection of efficient market hypotheses is valuable to momentum traders and stock market regulators.
Highlights
Finance literature carries substantial evidence on the existence and profitability of momentum returns since the seminal work of Jegadeesh and Titman (1993)
Similar results have been documented in prominent cross-country studies such as Rouwenhorst (1998) who found momentum returns across all European stock markets
It is important to identify the magnitude of momentum returns across countries so that policymakers are aware of the validity of efficient market hypothesis (EMH) in their respective stock markets
Summary
Finance literature carries substantial evidence on the existence and profitability of momentum returns since the seminal work of Jegadeesh and Titman (1993). The International Journal of Banking and Finance, Vol 14, 2018-2019: 75-93 analyzed the American Stock Exchange (AMEX) and New York Stock Exchange (NYSE) using post 1940 stock data. They reported a significant monthly average momentum profit of 1.49% when adopting a zero-cost momentum strategy of buying past winners and selling past losers. Similar results have been documented in prominent cross-country studies such as Rouwenhorst (1998) who found momentum returns across all European stock markets. Rouwenhorst (1999) noted that 85% and 15% of the sample countries exhibited positive and negative momentum returns, respectively. Griffin, Ji and Martin (2003) reported that 80% (18%) of their sample countries exhibited positive (negative) momentum returns, whereas 2% of their sample countries exhibited no momentum returns
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