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The Profitability of Momentum Investing
Author(s) -
Lui Weimin,
Strong Norman,
Xu Xinzhong
Publication year - 1999
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00286
Subject(s) - economics , profitability index , momentum (technical analysis) , econometrics , earnings , stock (firearms) , financial economics , cash flow , monetary economics , finance , mechanical engineering , engineering
We test for the presence of momentum profits in the UK over the period 1977 to 1998. The analysis shows that significant momentum profits are present in both a comprehensive sample of UK stocks and an accounting sub‐sample. An analysis of sub‐period results, seasonal effects, and the persistence of momentum profits confirms the robustness of the results. Controlling for factors known to be associated with differences in average returns, such as size, stock price, book‐to‐market ratio, and cash earnings‐to‐price ratio, cannot explain momentum profits. We also confirm that serial correlation in common factors and delayed price reaction to common factor realisations cannot explain momentum profits. We conclude that the momentum effect derives from market underreaction to either industry‐ or firm‐specific information and it is a significant, independent phenomenon in UK stock returns.