Momentum in Australian Style Portfolios: Risk or Inefficiency?

29 Pages Posted: 3 Jun 2016

See all articles by H. Chan

H. Chan

University of Melbourne - Department of Finance; Monash University - Department of Accounting

Paul Docherty

Monash University

Date Written: June 2016

Abstract

Momentum strategies have been reported to be successful across a range of different markets and asset classes. Three possible explanations for momentum have been hypothesised: risk, return continuation and excessive co‐movement of stock returns compared with dividends. Lewellen (2002) adds to this literature by providing evidence of strong momentum returns in style portfolios that can be explained by negative cross‐serial correlation, a result which supports the excess co‐movement hypothesis. We report robust evidence of style momentum in the Australian market and use the Jegadeesh and Titman (1995) return decomposition to show that this momentum strategy is predominately explained by positive autocorrelation. Our results support the return continuation hypothesis and confirm Chen and Hong's (2002) assertion that Lewellen's (2002) explanation of style momentum returns does not stand up out‐of‐sample.

Keywords: Asset pricing, Momentum, Style investing, Fama–French model

Suggested Citation

Chan, Howard and Docherty, Paul, Momentum in Australian Style Portfolios: Risk or Inefficiency? (June 2016). Accounting & Finance, Vol. 56, Issue 2, pp. 333-361, 2016. Available at SSRN: https://ssrn.com/abstract=2788257 or http://dx.doi.org/10.1111/acfi.12106

Howard Chan (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia

Paul Docherty

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

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