Relative, absolute or combined strength momentum strategies: what works for India?

IF 2.7 4区 管理学 Q2 BUSINESS International Journal of Emerging Markets Pub Date : 2024-08-05 DOI:10.1108/ijoem-09-2023-1518
Sanjay Sehgal, Asheesh Pandey, Swapna Sen
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Abstract

Purpose

In the present study, we investigate whether enhanced momentum strategies outperform price momentum strategies and if they show greater resilience and stability under adverse market conditions. We also examine if such strategies are explained by prominent asset pricing models or are a result of behavioral mispricing.

Design/methodology/approach

Data consist of the equity shares of all companies listed on National Stock Exchange over the study period. To check the efficacy of enhanced momentum over price momentum, six momentum strategies have been designed and their raw as well as risk-adjusted returns using multi-factor models have been observed. Behavioral mispricing has been examined by constructing an investor attention index. Finally, few robustness tests have been performed to confirm the results.

Findings

We find that an enhanced momentum strategy which combines relative and absolute strength momentum outperforms conventional price momentum strategy in India. We also demonstrate that rational pricing models are not able to explain momentum profits for any of the strategies. Finally, we observe that investor overreaction is the possible explanation of momentum profits in India. Thus, our results confirm the role of behavioral mispricing in explaining momentum returns.

Originality/value

Our research is the first major attempt to study enhanced momentum strategies in the Indian context. We experiment with several new enhanced momentum strategies which have not been explored in prior literature. The findings have strong implications for global portfolio managers who wish to design profitable trading strategies.

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相对、绝对或综合实力动量战略:什么对印度有效?
目的 在本研究中,我们调查了增强动量策略是否优于价格动量策略,以及在不利市场条件下是否表现出更大的弹性和稳定性。我们还研究了这些策略是否可以用著名的资产定价模型来解释,或者是否是行为错误定价的结果。数据包括研究期间在国家证券交易所上市的所有公司的股票。为了检验增强动量相对于价格动量的有效性,我们设计了六种动量策略,并使用多因子模型对其原始收益和风险调整收益进行了观察。通过构建投资者注意力指数,对行为错误定价进行了检验。最后,我们还进行了一些稳健性测试以确认结果。研究结果我们发现,在印度,结合了相对和绝对强势动量的增强型动量策略优于传统的价格动量策略。我们还证明,合理定价模型无法解释任何策略的动量利润。最后,我们发现投资者的过度反应可能是印度动量利润的原因。因此,我们的研究结果证实了行为错误定价在解释动量收益中的作用。原创性/价值我们的研究是在印度背景下研究增强动量策略的首次重大尝试。我们尝试了几种新的增强型动量策略,这些策略在之前的文献中从未探讨过。研究结果对希望设计有利可图的交易策略的全球投资组合经理具有重要意义。
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来源期刊
CiteScore
5.90
自引率
14.80%
发文量
206
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