An Empirical Study on Industry Momentum Strategy and Momentum Life Cycle Hypothesis – Evidence from the Taiwan Stock Market

Abstract

Since Jegadeesh and Titman (1993) found evidence from the U S market that the “Buy winner Sell loser” strategy also known as “Momentum Trading Strategy” is significantly profitable there have been a plenty of research focused on the development of different kinds of momentum such as sales momentum earnings momentum moving average momentum recent 52-week high momentum residual momentum etc Moskowitz and Grinblatt (1999) propose the theory of industry momentum arguing that the relatively strong industries in the past tend to perform strongly in the future whereas relatively weak industries in the past tend to perform poorly in the future In light of the well-known phenomenon “the industries take turns to perform ” in the domestic Taiwan stock market we try to develop a trading strategy based on industry momentum In line with the Momentum Life Cycle hypothesis introduced by Lee and Swaminathan (2000) we propose the “Early Momentum Strategy” (EMS) by going long past winners with low trading volume and going short past losers with high trading volume in the same time In comparison with the Early Momentum Strategy we also construct the “Late Momentum Strategy” (LMS) by going long past winners with high trading volume and simultaneously going short past losers with low trading volume Our empirical results tend to show that EMS is more profitable and reliable than Industry Momentum Strategy while LMS is not

Date of Award	2016 Jul 7
Original language	English
Supervisor	Meng-Feng Yen (Supervisor)