Momentum Effect in Developed and Emerging Stock Markets

Abstract

The study aims to reaffirm the existence of short-term momentum effect in 13 developed and emerging stock markets where previous literature has a lack of consensus on the issue. Although many studies emphasize on the existence of the momentum effect, still, there is a substantial number of researchers that deny its presence. The contradictory findings of many researchers, over the existence of the momentum effect, raise a serious question as to what extent our stock markets are informationally efficient and whether investors can make abnormal profits by using momentum investment strategies. This study applies the momentum investment strategy, J6K6, to calculate momentum returns. Our study finds a negative significant momentum effect in all 13 stock markets. Although momentum effect is present in 13 countries, yet investors are not able to attain abnormal profit through momentum investing. These findings have utmost importance for practitioners that they should not adopt momentum investment strategies in these countries as these strategies are generating losses. Moreover, stock market regulators should formulate these markets on the notion of an efficient market hypothesis.