Does The Increased Trading Volume Catch Investors Attention Supporting 52-Week High Momentum Profits?
Leppänen, Sara (2011)
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The purpose of this study is to find out whether the 52-week high momentum strategy (buying recent winners and selling recent losers) is profitable in the European stock markets. In this particular momentum strategy stocks are ranked to winner and loser portfolios exploiting their 52-week high values. The other focus is to examine how trad-ing volume affects to the strategy profits. In addition, the possible influence of the latest financial crisis has been reviewed. The profitable strategy would impugn the market efficiency.
The daily returns of stocks included to the STOXX Europe Total Market Index as well the index returns are foundation for the data. Daily trading volumes of the same stocks are under examination. The sample period, starting at 2001 and running at the end of the year 2010, provides a unique research frame including the latest financial crisis. The Student´s t-test is used to find out the statistical significance of returns.
The main findings are following. Weak, but highly statistically significant profits were found in European stock markets executing the 52-week high momentum strategy. The profits strengthened notably when trading volumes were taken into account. The 52-week high momentum was strongest among low-volume stocks. During the financial crisis the profits increased and when trading volume was observed the profits were con-siderable. This time the 52-week high momentum was strongest among high volume stocks. Also cyclical patterns of 52-week high momentum profits were found. The result suggests that investors suffer behavioral biases, especially of availability bias more when the uncertainty in markets is pronounced.
The daily returns of stocks included to the STOXX Europe Total Market Index as well the index returns are foundation for the data. Daily trading volumes of the same stocks are under examination. The sample period, starting at 2001 and running at the end of the year 2010, provides a unique research frame including the latest financial crisis. The Student´s t-test is used to find out the statistical significance of returns.
The main findings are following. Weak, but highly statistically significant profits were found in European stock markets executing the 52-week high momentum strategy. The profits strengthened notably when trading volumes were taken into account. The 52-week high momentum was strongest among low-volume stocks. During the financial crisis the profits increased and when trading volume was observed the profits were con-siderable. This time the 52-week high momentum was strongest among high volume stocks. Also cyclical patterns of 52-week high momentum profits were found. The result suggests that investors suffer behavioral biases, especially of availability bias more when the uncertainty in markets is pronounced.