James A. Sefton
Imperial College London; National Institute of Economic and Social Research (NIESR)
Financial Analysts Journal, Vol. 61, No. 2, pp. 64-82, March/April 2005
The extensive literature on price momentum effects is a potential source of confusion for portfolio managers because conflicting explanations give rise to different implications for portfolio strategy. Analysis of the value-weighted large-capitalization universe represented by the MSCI World Index indicates that price momentum is driven largely by industry momentum, not individual-stock momentum, and that it is not a result of cross-sectional dispersion in industry mean returns or varying industry exposure to systematic risk. In a small-cap universe, stock-specific effects assume greater importance. For sample periods 1992-2003 and 1980-2003, value investors would have reduced risk by imposing sector neutrality on their portfolios whereas growth managers could have profited by relaxing sector constraints.
Keywords: Equity investments, technical analysis, portfolio management, equity strategiesAccepted Paper Series
Date posted: May 7, 2005
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