Momentum, Echo and Predictability: Evidence from the London Stock Exchange (1820-1930)

34 Pages Posted: 5 Jun 2019

See all articles by Giulio Trigilia

Giulio Trigilia

University of Rochester - Simon Business School

Pingle Wang

University of Texas at Dallas, Naveen Jindal School of Management, Department of Finance

Date Written: April 5, 2019

Abstract

We study momentum and its predictability within equities listed at the London Stock Exchange (1820-1930). At the time, this was the largest and most liquid stock market and it was thinly regulated, making for a good laboratory to perform out-of-sample tests. Cross-sectionally, we find that the size and market factors are highly profitable, while long-term reversals are not. Momentum is the most profitable and volatile factor. Its returns resemble an echo: they are high in long-term formation portfolios, and vanish in short-term ones. We uncover momentum in dividends as well. When controlling for dividend momentum, price momentum loses significance and profitability. In the time-series, despite the presence of a few momentum crashes, dynamically hedged portfolios do not improve the performance of static momentum. We conclude that momentum returns are not predictable in our sample, which casts some doubt on the success of dynamic hedging strategies.

Keywords: momentum, echo, predictability, momentum crashes, dynamic hedging strategies, London Stock Exchange, factor analysis

JEL Classification: G12

Suggested Citation

Trigilia, Giulio and Wang, Pingle, Momentum, Echo and Predictability: Evidence from the London Stock Exchange (1820-1930) (April 5, 2019). Available at SSRN: https://ssrn.com/abstract=3373164 or http://dx.doi.org/10.2139/ssrn.3373164

Giulio Trigilia (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Pingle Wang

University of Texas at Dallas, Naveen Jindal School of Management, Department of Finance ( email )

800 West Campbell
Richarson, TX 75080
United States

HOME PAGE: http://www.wangpingle.com

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