Momentum Strategies: Some Bootstrap Tests

Posted: 25 Dec 2003

See all articles by George Andrew Karolyi

George Andrew Karolyi

Cornell University - SC Johnson College of Business

Bong-Chan Kho

Seoul National University, Business School

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Abstract

This study introduces a new estimation-based bootstrap simulation procedure to test whether different returns-generating models can explain the profitability of momentum strategies first documented in Jegadeesh and Titman (1993). We incorporate simple random walk and multifactor models and allow for autocorrelation, cross-correlation, conditional heteroscedasticity and predictability through conditioning information variables. We also evaluate alternative sampling procedures for the bootstrap simulations. None of the models, however, are able to generate simulated profits as large as the actual profits. We do find, however, that accounting for time-varying expected returns with market-wide and macroeconomic instrumental variables can explain 75 to 80 percent of the profits.

JEL Classification: G14, G12

Suggested Citation

Karolyi, George Andrew and Kho, Bong-Chan, Momentum Strategies: Some Bootstrap Tests. Available at SSRN: https://ssrn.com/abstract=482964

George Andrew Karolyi (Contact Author)

Cornell University - SC Johnson College of Business ( email )

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HOME PAGE: http://https://www.johnson.cornell.edu/faculty-research/faculty/gak56/

Bong-Chan Kho

Seoul National University, Business School ( email )

607 LG Hall
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Seoul, 08826
Korea, Republic of (South Korea)
+82-2-880-8798 (Phone)
+82-2-876-8411 (Fax)

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