Abstract
This article examines return momentum in Irish shares over a 24-year period, including the recent credit crisis. The optimal momentum strategy generates significant risk-adjusted abnormal returns that are robust to the return generating model and seasonal effects. The extent of underreaction is more symmetrical than previous research has indicated, with both past winners and losers contributing to momentum returns. Momentum is found to be significantly higher in the pre-credit crisis period. The source of the positive returns in the momentum strategy changes from the winner portfolio to the loser portfolio as we move into the credit crisis, with this latter period showing positive but insignificant moment returns.
Notes
1 The use of value-weighted portfolios did not alter the results materially.
2 Given the small number of shares listed on the Irish market, taking the top (bottom) three deciles as winners (losers) would result in some winner (loser) portfolios with only three or four shares.
3 The empirical findings were qualitatively similar and robust to the use of monthly share price data.
4 Small-cap stocks are defined with market value of less than 0.1% of the overall market cap.
5 We found that a holding period of approximately 7 weeks is optimum, with average monthly returns of 2.1%, rising to 2.54% when a week is skipped between the holding and rank period. Jegadeesh and Titman (Citation1993) recommend skipping a week to minimize microstructure biases.