Title: Momentum returns: market, seasonal and aging considerations

Authors: Sridhar Sundaram, Glenn N. Pettengill, Ike Mathur

Addresses: Finance Department, Grand Valley State University, Grand Rapids, MI 49504, USA. ' Finance Department, Grand Valley State University, Grand Rapids, MI 49504, USA. ' Department of Finance, Southern Illinois University, Carbondale, IL 62901, USA

Abstract: This paper examines the momentum returns from portfolios constructed using the NYSE-AMEX stocks. Following the methodology of Jegadeesh and Titman (1993), we form the momentum portfolio by going long on winners, defined as securities with returns in the top decile of previous six-month cumulative return, and short on losers, defined as securities with returns in the bottom decile of previous six-month cumulative return. Consistent with previous literature, we find that momentum portfolios earn significantly higher returns in the six-month period following the formation period. But, we also find that loser portfolios earn returns significantly greater than zero during this period. Further examination of the returns to the momentum portfolio during up and down markets and during each month of the year reveal a strong seasonality in these returns. Specifically, we find higher returns to winners occur primarily in down markets and a significant reversal in momentum returns in observed in the month of January. These empirical results support neither the under reaction nor the overreaction hypothesis. Further research is needed to examine the sources of these momentum returns.

Keywords: momentum returns; under reaction; overreaction; seasonality; up and down markets; winner portfolios; loser portfolios.

DOI: 10.1504/IJBAF.2011.038758

International Journal of Behavioural Accounting and Finance, 2011 Vol.2 No.1, pp.79 - 97

Published online: 01 Mar 2011 *

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