Implementing a Systematic Long-only Momentum Strategy: Evidence From India

Abstract

We show that a monthly-rebalanced, long-only portfolio of top-decile stocks selected from the NIFTY100 using `off-the-shelf' momentum criteria significantly outperforms the NIFTY100 Index - both in terms of absolute returns (by 10.70% pa) and risk adjusted returns, with a mean turnover of 32.10% per month. We show that momentum persists in the near term but dissipates over time. We demonstrate that our long-only approach has a significant tilt to the momentum factor. We also show that time in the market rather than timing the market is important for momentum investing. The strategy has higher volatility and the occasional momentum crash. The strategy's out performance survives real-world implementation given the rise of discount brokers in India. In the absence of cheap ETFs to get exposure to momentum, the systematic long-only strategy from the most liquid part of the market using `off-the-shelf' criteria provides a practical, executable investment methodology that exposes an investor to momentum in the Indian market.