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Abstract
This paper investigates the profitability of momentum investment strategies – residual momentum versus price momentum – for common stocks listed in Hong Kong, Singapore, Taiwan, and Thailand. This study shows that the residual-momentum winner and loser on the previous residual returns derived under the CAPM have lower time-varying exposures to the market risk. The residual momentum strategy generates not only higher but also more consistent returns over time than the price momentum strategy. Moreover, the residual momentum effect exists in the four aforementioned stock markets, whereas there is no evidence for the price momentum.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. Similarly, Grundy and Martin (Citation2001) as well as Blitz, Huij, and Martens (Citation2011) determined that price momentum strategies exhibit strong exposure to the Fama–French three-factor model.
2. Recent papers (e.g. Daniel and Moskowitz (Citation2016), Barroso and Santa-Clara (Citation2015), and Blitz, Huij, and Martens (Citation2011)) document that payoffs to momentum strategies have occasionally experienced substantial losses or ‘crashes’. For example, over a momentum crash in 2009, the winner-minus-loser decile in US markets experienced a return of −73.42% in three months.
3. The data are selected not only from the Taiwan Stock Exchange but also from the over-the-counter market.
4. Following Blitz, Huij, and Martens (Citation2011), a robustness test with 36-month rolling windows will be reported later.
5. For brevity, we only report the results with J = 6 (months), K = 6 (months). The results with other J/K combinations are available upon requests.