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Momentum trading is a popular investment strategy. Loosely speaking, it consists of periodically buying groups of outperforming stocks and selling non-winning stock portfolios.
We have presented studies that demonstrated the trending property of equity indices in the long term. This led to the possibility of developing profitable momentum investment strategies. However, we only focused on the US indices. The question now is: does momentum trading work in other markets?
Reference [1] reviewed momentum trading across various markets, from developing to developed countries. Specifically,
This research is a literature research review that focuses on the topic of the momentum strategy in the capital market. This strategy is a trading strategy carried out by investors by buying stocks that have performed well in the hope that the performance will continue well in the future. The results of the study show that most of the capital market investors carried out a momentum strategy even though the implementation is still inconsistent. It indicates that the development of several capital markets leads to inefficient markets.
After an extensive literature review, the authors concluded that momentum trading works in most markets, but with some degree of variation,
Based on the description of the literature described above, it turns out that there are several variations. In general, the findings in the literature review of this study show that in various capital markets in the world, both developed and developing countries, the momentum strategy occurs. The occurrence of such momentum strategies varies widely but mostly occurs in the short-term during at least the twelve months observation and testing period.
In summary, momentum is a universal phenomenon that exists in various markets, from developing to developed ones. However, developing a profitable momentum investment strategy for a particular market would require some fine-tuning, taking that market’s characteristics into account.
References
[1] G. Syamni, Wardhia, D.P. Sari, B. Nafis, A Review of Momentum Strategy in Capital Market, Advances in Social Science, Education and Humanities Research, volume 495, 2021
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