Momentum Investing and Trading Volume : Evidence from the FTSE 350 firms
Heinämäki, Matti (2020-06-30)
Heinämäki, Matti
30.06.2020
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe2020063046417
https://urn.fi/URN:NBN:fi-fe2020063046417
Tiivistelmä
Momentum investing is a strategy of buying recent winning stocks and short selling recent losing stocks. It is based on the belief that past share price developments will continue in the future, and this phenomenon is one of the most well-known anomalies in the stock markets. Previous studies have shown that the momentum anomaly has been observed in almost every part of the world. What makes the phenomenon interesting is that it has not disappeared over time, as it has happened to many other anomalies.
This study aims to determine the existence of momentum phenomenon in the stocks of the FTSE 350 index in the years 2005-2019. Of particular interest is the impact of past trading volume in the profitability of momentum strategies. In the empirical section of the study, winner and loser portfolios are formed based on the past success of the stocks and the profitability of these portfolios is monitored in the following months. These portfolios are then divided into new momentum portfolios based on historical trading volume in order to see whether the degree of trading volume does impact on the momentum returns.
Based on the results of this study, the momentum phenomenon is observable in FTSE 350 index stocks during certain holding periods. During these holding periods, returns increased further when past trading activity was taken into account. Recent winner stocks with low past trading volume generated the highest returns between all portfolios. The results show that the short selling of past loser stocks was unprofitable and it would have been more successful to focus only on buying previous winner stocks.
This study aims to determine the existence of momentum phenomenon in the stocks of the FTSE 350 index in the years 2005-2019. Of particular interest is the impact of past trading volume in the profitability of momentum strategies. In the empirical section of the study, winner and loser portfolios are formed based on the past success of the stocks and the profitability of these portfolios is monitored in the following months. These portfolios are then divided into new momentum portfolios based on historical trading volume in order to see whether the degree of trading volume does impact on the momentum returns.
Based on the results of this study, the momentum phenomenon is observable in FTSE 350 index stocks during certain holding periods. During these holding periods, returns increased further when past trading activity was taken into account. Recent winner stocks with low past trading volume generated the highest returns between all portfolios. The results show that the short selling of past loser stocks was unprofitable and it would have been more successful to focus only on buying previous winner stocks.