Do Style and Sector Indexes Carry Momentum?
The Journal of Investment Strategies, vol1(3), Summer 2012, 67-89.
29 Pages Posted: 1 Sep 2012 Last revised: 7 Sep 2012
Date Written: August 28, 2011
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.
Keywords: Style Indexes, Sector Indexes, Price Momentum, Earnings Momentum, Transaction Costs
JEL Classification: G10, G11, G14
Suggested Citation: Suggested Citation