Submitted by: Submitted by Emma1989
Views: 317
Words: 1098
Pages: 5
Category: Business and Industry
Date Submitted: 08/06/2011 12:15 AM
This study examines the profitability of momentum trading strategies within the Australian equity
market. While this paper utilises the Jegadeesh and Titman (1993) equally weighted decile momentum
trading strategy, we extend their analysis in a number of significant ways. First, this study represents the
first application of Barber and Lyon's (1997) matched sample methodology to examine excess momentum
profits. Second, we also provide further Australian evidence on the robustness of excessmomentumprofits
to short selling restrictions and transaction costs in the form of bid-ask spreads. Further, we present the
first empirical study to document the average dollar profits obtainable fromimplementing a Jegadeesh and
Titman (1993) inspired momentum strategy incorporating short selling restrictions, transaction costs in
the form of buying at the ask price and selling at the bid price, and liquidity constraints.
We provide verification of the significance of momentum profits in the Australian equity market.
Although the extant empirical literature documents significant excess momentumprofits across numerous
overseas equity markets (see, for example, Rouwenhorst, 1998; Jegadeesh and Titman, 2001), existing
Australian evidence is both limited and contradictory. While Demir et al. (2004) and Marshall and Cahan
(2005) document excess returns, Griffin et al. (2003) fail to find evidence of significantmomentumprofits.
Our findings of six-month excess buy-and-hold returns of 17.88% when utilising Jegadeesh and Titman's
(1993) zero cost investment portfolio approach are consistent with those of Demir et al. (2004) and
Marshall and Cahan (2005).
More significantly, this paper provides the first examination of momentum profits using Barber and
Lyon (1997) size and book-to-market matched control portfolios. Using this methodology we document
six-month buy-and-hold excess momentum profits of 17.79%.
Furthermore, we provide the first evidence that momentum profits in the Australian...