Predictability of Future Index Returns Based on the 52-Week High Strategy

Abstract

In a landmark paper, George and Hwang (2004) show that a stock’s 52-week high price largely explains the momentum effect and that a strategy based on closeness to the 52-week high has better forecasting power for future returns than do momentum strategies. We find that the 52-week high strategy is unprofitable when applied to emerging markets indices, and that it is significantly less profitable than the corresponding momentum strategy. Overall the 52-week high effect is not as pervasive as the momentum effect.

Keywords: 52-week high, momentum, emerging markets, index returns

JEL Classification: G14, G15