The 52-Week high and momentum investing: Implications for asset pricing models

• Type: Article in International Scientific Journal
• Date: 2017

Authors

Lobão, J (Author) FEP; Fernandes, JM (Author) Other

Journal

Title: Annals of Economics and Finance

Vol. 18 No. 2

Pages: 349-376

ISSN: 1529-7373

Publisher: Peking University Press

Indexing

Scopus - 1 Citation

Other information

Authenticus ID: P-00N-GXM

Abstract (EN): We propose and test a new 4-factor asset pricing model, modifying the method of estimating the momentum risk factor, based on the conclusions of George and Hwang (2004). We proceed to compare the performance of our model with those of Fama and French (1993, 1996) and Carhart (1997)¿s. We find that the authors¿ 52-week high strategy achieves a positive, though statistically insignificant return in 1980-2014, with severely divergent performances in subperiods 1980-2000 (significantly positive) and 2001-2014 (significantly negative). Overall, our model for portfolios built on momentum outperforms the 3-factor model but falls short from Carhart (1997)¿s. Subperiod analysis shows results in line with the complete sample for 1980-2000, while both momentum models¿ performance in subperiod 2001-2014 seems influenced by the unanticipated momentum crash of 2009. We conclude that a momentum risk factor should be included in a given asset pricing model, but evidence suggests it should be based on Jegadeesh and Titman (1993).

Language: English

Type (Professor's evaluation): Scientific