Relative Strength Strategy in Indian Stock Market: 1990-2007

Abstract

This paper examines the momentum effect in Indian stock market using the J month/ K month methodology of Jegadeesh and Titman (1993, 2001). The study is organized into two parts. In the first part, we document the interaction between past returns in predicting future returns. Having established that the relative strength strategies are on average quite profitable, in the second part, we examined whether the momentum profit is attributed to any seasonality effect. Our empirical result reveals that the returns of the winner portfolio in case of all four different J's (3 months, 6 months, 9 months, and 12 months) are highest in the first month post portfolio formation and then they are gradually declining. Second, there is no clear month of the year effects in momentum profits. The study sets out direction for future research in Indian stock market.