SHORT TERM MOMENTUM PROFITS AND ASSET PRICING MODELS
Abstract
In this paper, we test the short term momentum strategy in three time windows particularly (1) 3-3 momentum strategy, (2) 6-6 momentum strategy, and (3) 12-12 momentum strategy. We also examine the ability of asset pricing models such as CAPM, Fama-French model, and Carhart four factor model in capturing momentum profits. We observe that among three time windows of momentum profits, 6-6 strategy and 12-12 strategies equally provide higher average returns as winner portfolios yield monthly returns of 3.3 percent. We find from the empirical results that CAPM and Fama-French model are unable to explain short term momentum profits while Carhart four factor model captures average returns on all winner portfolios.References
Balakrishnan, A. (2014). Multifactor Explanations of CAPM Anomalies: An Evidence for Indian Stock Market. Asian Journal of Finance & Accounting,6(1), 337-366.
Barberis, N., Shleifer, A., & Vishny, R. (1998). A model of investor sentiment.Journal of financial economics, 49(3), 307-343.
Carhart, M. M. (1997). On persistence in mutual fund performance. The Journal of finance, 52(1), 57-82.
Chan, L. K., Jegadeesh, N., & Lakonishok, J. (1996). Momentum strategies.The Journal of Finance, 51(5), 1681-1713.
Chordia, T., & Shivakumar, L. (2002). Momentum, business cycle, and time-varying expected returns. Journal of Finance, 985-1019.
Chui, A. C., Titman, S., & Wei, K. J. (2010). Individualism and momentum around the world. The Journal of Finance, 65(1), 361-392.
Daniel, K., Hirshleifer, D., & Subrahmanyam, A. (1998). Investor psychology and security market underâ€and overreactions. the Journal of Finance, 53(6), 1839-1885.
Bondt, W. F., & Thaler, R. (1985). Does the stock market overreact?. The Journal of finance, 40(3), 793-805.
Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of financial economics, 33(1), 3-56.
Fama, E. F., & French, K. R. (1996). Multifactor explanations of asset pricing anomalies. The journal of finance, 51(1), 55-84.
Fama, E. F., & French, K. R. (2008). Dissecting anomalies. The Journal of Finance, 63(4), 1653-1678.
Fama, E. F., & French, K. R. (2012). Size, value, and momentum in international stock returns. Journal of financial economics, 105(3), 457-472.
Jegadeesh, N., & Titman, S. (1993). Returns to buying winners and selling losers: Implications for stock market efficiency. The Journal of finance, 48(1), 65-91.
Jegadeesh, N., & Titman, S. (2001). Profitability of momentum strategies: An evaluation of alternative explanations. The Journal of Finance, 56(2), 699-720.
Jegadeesh, N., & Titman, S. (2002). Crossâ€sectional and timeâ€series determinants of momentum returns. Review of Financial Studies, 15(1), 143-157.
Lewellen, J. (2002). Momentum and autocorrelation in stock returns. Review of Financial Studies, 15(2), 533-564.
Liu, L. X., & Zhang, L. (2008). Momentum profits, factor pricing, and macroeconomic risk. Review of Financial Studies, 21(6), 2417-2448.
Rouwenhorst, K. G. (1998). International momentum strategies. Journal of Finance, 267-284.
Sehgal, S., & Balakrishnan, I. (2002). Contrarian and momentum strategies in the Indian capital market. Vikalpa, 27(1), 13-20.
Sehgal, S., & Ilango, B. (2004). Momentum profits, portfolio characteristics and asset pricing models. Decision, Vol.31, No.2,.49-77
Sehgal, S., & Jain, S. (2011). Short-term momentum patterns in stock and sectoral returns: evidence from India. Journal of Advances in Management Research, 8(1), 99-122.
