Do Style and Sector Indexes Carry Momentum?

Abstract:     
Existing literature documents that cross-sectional stock returns exhibit both price momentum and earnings momentum. In this paper, we examine whether commonly used style and sector indexes also have momentum patterns. We show that style indexes exhibit strong price momentum, but little evidence of earnings momentum. On the other hand, sector indexes exhibit both significant price momentum and earnings momentum. Moreover, we provide evidence that price momentum in style indexes can be explained by individual stock return momentum, whereas price momentum in sector indexes is driven by earnings momentum. Finally, we show that a dynamic momentum strategy can further enhance the performance of style investment even after adjusting for transaction costs.

Number of Pages in PDF File: 29

Keywords: Style Indexes, Sector Indexes, Price Momentum, Earnings Momentum, Transaction Costs

JEL Classification: G10, G11, G14

Accepted Paper Series