Evaluation of the Profitability of Momentum and Reversal Strategies of Industry in the Capital Market of Iran

Journal of Asset Management and Financing

Mohammad Esmaiel Fadaie Nejad¹  Reza Farahani²  Mohammad Mhoseynabadi³ 

[1] Associate Professor, Department of Financial Management and Accounting, Faulty of Management and Accounting, Shahid Beheshti university, Tehran, Iran.;Instructor, Department of Financial and Banking group, Faculty of Management and Accounting, Allame Tabatabayee University, Tehran, Iran.;Master of Financial Management, Department of Management and Accounting, Faulty of Management and Accounting, Shahid Beheshti university, Tehran, Iran.;

关键词: industry momentum strategy;    industry reveres strategy;    portfolio management;    behavioral finance;   

DOI  :  10.22108/amf.2020.115998.1401

来源: DOAJ

【 摘 要 】

Abstract:Momentum and reverse strategies are two influential methods of market analysis that aim to predict future performance in different industries and to generate excess returns, applying historical information. The industry momentum claims the industries experiencing good (bad) performance in the past will provide this return in the future as well. We intend to examine the usefulness of the mentioned strategies. Moskowitz and Grinblatt (1999) focused on 20 industries and labeled three industries with the highest return as winning industries and three industries with the lowest return as losing industries. Also, Grobys and Kolari (2019) selected twentieth highest and lowest return as winning and losing industries. In this study, the statistical population includes all industries in the Tehran Security Exchange, during the years 2007 to 2017. Based on this research, a diverse set of portfolios of different industries has been examined separately for winners and losers at different times, in which the winning industries are the five industries with the highest return and the losing industries are the five industries with the lowest return. After calculating the returns of the winning and losing industries every month in 37 industries, quarterly, six-month, twelve-month, and twenty-four-month cumulative returns have been calculated as a sample and used to perform the tests. The general hypothesis of the research is that the return of the previous winner portfolios formed in the Fi period and holding in the Hj period is equal to the return of the previous loser portfolios formed in the Fi period and holding in the Hi period. The method of testing the hypothesis of this research is the test of comparing the means of two societies for two momentary and reverse industry strategies. To compare the returns of strategies, t-test and Leven variance homogeneity test were used, and to test the hypotheses, SPSS software was used. Comparison of 30 different scenarios of portfolio returns in different formation and holding periods indicates that out of 30 cases, in 22 cases the industry momentum strategy is superior, which has happened often in shorter periods. For example, during the one-month formation and holding period (F1, H1) of the portfolio, the momentum strategy at the 95% confidence level is more profitable than the reverse strategy. In addition, in 8 cases, the reverse momentum of the industry has been more useful, most of which occurred in the holding periods of one year or more. Comparisons show that, with increasing the period of portfolio formation, the returns of these two strategies are balanced and gradually in the holding periods of one year and more, the superiority of the reverse momentum strategy is evident. In total, in 8 cases, the difference in the profitability of the two strategies is significant, and in 5 cases are related to the momentum strategy, consisted of periods (F1, H1), (F1, H3), (F9, H6), (F12, H1), (F12, H3) and in other periods including (F3, H24), (F9, H24) and (F12, H24) reverse strategy had a significant advantage. The statistical sample of this study consists of 37 industries in the period from 2007 to 2017 in monthly periods, applying 60 strategies in terms of Formation and Hold of portfolios in diverse periods. To investigate the profitability of such strategies, the equality of means hypotheses and the homogeneity of variance test were examined. The results indicate that each of these approaches is superior over a certain period. In some shorter periods, the momentum of the industry has excess returns than the reverse industry; however, when the Hold period is longer than one year, the reverse strategy tends to be more profitable than the momentum strategy. In similar studies, Moskowitz and Grinblatt (1999) showed that in shorter periods, only the momentum profitability of the industry is higher. Grobys and Kolari (2019) also concluded that industry portfolios that had more returns in forming periods significantly had higher returns in the forming periods than portfolios that performed poorly in the period. The main finding of Huberg and Philips ‌ (2018) also indicates the momentum profitability of the industry. The results of the present study also reveal that in most of the shorter periods, the industry momentum has been more profitable than the industry reverse momentum, which is consistent with the results of the above researches, although this advantage is not statistically significant in all cases.Keywords: Industry momentum strategy, Industry reveres strategy, Portfolio management, Behavioral finance. Introduction:There are two important and practical strategies among individual and institutional investors, analysts and, market participants, the momentum strategy of industry and the reverse of industry. Generally, according to the momentum strategy, the positive or negative of past returns will continue for a period of the future. According to the reverse strategy, Investors are likely to make mistakes since recent price trends are reversing. In these strategies, future performance is tried to create more return by using the past, predicted performance. These strategies are opposed to the market efficiency hypothesis, as the return on stock at different times has a special behavior and investors can get more returns than market returns without bearing more risk and only by using the right investment strategy. Material & Methods:In this survey, the statistical population includes all industries in the Iranian capital market during the years 2007 to 2017. Based on the available data, a diverse portfolio of different industries of winners and losers in different times has been examined. The winner industries are the five industries that have the highest returns and the loser industries are the five industries with the lowest returns, in which the weighted average of the companies in each industry is taken into account in terms of cash inflows. The portfolio returns of past winners formed in period (F) and held in period (H) is equal to the portfolio returns of past losers formed in period F and held in period H. Of course, this hypothesis, due to the different periods F and H, includes more sub-hypotheses, each of which will be tested in this survey. Finding:Based on the comparison and test of the average returns of momentum and reverse strategies in different periods of Form and Hold, the results obtained are given in the table below. In a comparison of each scenario, the superior strategy is identified, and in cases where the average return of the strategy is significantly different at the level of 95% and 99% confidence interval, is marked with(*) and(**). Summary of strategy scenarios based on average return of portfoliosH24H12H9H6H3H1 reversemomentummomentummomentummomentum *momentum *F1reverse *momentummomentummomentummomentummomentumF3reversemomentummomentummomentumreversereverseF6reverse **momentummomentummomentum *momentummomentumF9reverse **reversemomentummomentummomentum *momentum *F12 Conclusions & Results:     In this study, the profitability of two momentum and reverse industry strategies is evaluated and compared. Comparison of returns of 30 different scenarios of portfolios, in different periods of Form and Hold for momentum and reverse strategy, indicates that in most of the shorter periods, industry momentum has more profitability than reverse momentum, but in higher Hold periods, with increasing Form period, these two Strategies are balanced in terms of profitability, and when the Hold period is longer than one year, the reverse momentum of the strategy is dominant. To sum it up, in 8 cases, the difference in the profitability of the two strategies is statistically significant, of which 5 cases are related to the momentum strategy and the rest are related to the reverse strategy.Compared to similar studies in other countries such as Moskowitz and Grainblatt (1999) which showed that only the momentum return of the industry is higher in shorter periods of time, The present study reveals that in the shorter periods, almost the return of momentum industry is higher than the inverse momentum. Also, Grubies and Kolari (2019) concluded that industry portfolios that performed better returns in the last period had significantly higher returns in Hold periods than portfolios that performed fewer returns in that period. Also, the main finding of Huberg and Phillips (2018) indicates the momentum profitability of the industry. The results of this study show that in most of the shorter periods, the momentum strategy of the industry has been superior, which is consistent with the results of the above research, although this superiority is not statistically significant in all cases.

【 授权许可】

Unknown