Last Updated on 10 February, 2024 by Rejaul Karim
Delve into the global intricacies of stock markets as Ming Liu, Qianqiu Liu, and Tongshu Ma unravel the compelling narrative of the “52-Week High Momentum Strategy” in the Journal of International Money and Finance. Across 64 pages, this exploration, born from George and Hwang’s groundwork, unfolds a tale of profits spanning 18 of the 20 markets scrutinized, with significance gracing 10.
Weathering the winds of individual and industry returns, this momentum strategy stands resolute, independent of Jegadeesh and Titman’s momentum approach. Robust against the Fama-French three factors, the 52-week high remains a steadfast predictor of future returns, surpassing macroeconomic risk factors and acquisition prices.
While the individualism index holds no sway, transaction costs emerge as the final arbiter, rendering the profits non-significant in most markets.
Abstract Of Paper
We study the 52-week high momentum strategy in international stock markets proposed by George and Hwang (2004). This strategy produces profits in 18 of the 20 markets studied, and the profits are significant in 10 markets. The 52-week high momentum profits still exist conditional on past individual and industry returns, and are independent from the profits from the Jegadeesh and Titman (1993) momentum strategy. These profits are robust when we control for the Fama-French three factors and they do not show reversals in the long run. We find that the 52-week high is a better predictor of future returns than macroeconomic risk factors or the acquisition price. The individualism index has no explanatory power to the variations of the 52-week high momentum profits across different markets. However, the profits are no longer significant in most markets once transaction costs are taken into account.
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International University of Japan; International University of Japan
University of Hawaii at Manoa – Shidler College of Business
In scrutinizing the 52-week high momentum strategy across international stock markets, Liu, Liu, and Ma unravel a compelling narrative of consistent profitability. With an impressive success rate in 18 of the 20 markets studied, and significant profits in 10, the strategy stands resilient against factors like individual and industry returns.
Importantly, it operates independently from the well-known Jegadeesh and Titman momentum strategy, showcasing its unique predictive power. The 52-week high emerges as a superior predictor of future returns compared to macroeconomic risk factors or acquisition prices.
While the individualism index fails to explain variations in momentum profits, transaction costs pose a challenge, dampening significance in most markets. This study not only validates the strategy’s effectiveness but also sheds light on its nuanced dynamics in diverse global markets.
Q1: What is the main finding of Ming Liu, Qianqiu Liu, and Tongshu Ma’s research on the “52-Week High Momentum Strategy”?
A1: The main finding is that the 52-week high momentum strategy, proposed by George and Hwang, generates profits in 18 of the 20 international stock markets studied. The profits are significant in 10 markets, showcasing the strategy’s robustness and effectiveness across diverse global markets.
Q2: How does the 52-week high momentum strategy perform in comparison to other momentum strategies, and what factors influence its profitability?
A2: The 52-week high momentum strategy operates independently from the Jegadeesh and Titman momentum strategy, demonstrating its unique predictive power. It remains profitable even when controlling for factors like past individual and industry returns and the Fama-French three factors. The strategy proves to be a better predictor of future returns than macroeconomic risk factors or acquisition prices.
Q3: What are the factors that affect the significance of profits from the 52-week high momentum strategy in different markets?
A3: The individualism index fails to explain variations in momentum profits across different markets. However, the profits lose significance in most markets when transaction costs are taken into account. While the strategy is consistently profitable, the impact of transaction costs becomes a crucial factor in determining its overall significance in various markets.