The 52-week high,momentum, and predicting mutual fund returns |
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Authors: | Travis R A Sapp |
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Institution: | (1) Department of Finance, College of Business, Iowa State University, 3362 Gerdin Business Bldg, Ames, IA 50011-1350, USA |
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Abstract: | George and Hwang (J Finance 59:2145–2176, 2004) have shown that the 52-week high share price carries significant predictive ability for individual stock returns, dominating
other common momentum-based trading strategies. Based upon their results and other methods, this paper examines and compares
the performance of three momentum trading strategies for mutual funds, including an analogous 1-year high measure for the
net asset value of mutual fund shares. Strategies based on prior extreme returns and on fund exposure to stock return momentum
are also examined. Results show that all three measures have significant, independent, predictive ability for fund returns.
Further, each produces a distinctive pattern in momentum profits, whether measured in raw or risk-adjusted returns, with profits
from momentum loading being the least transitory. Nearness to the 1-year high and recent extreme returns are significant predictors
of fund monthly cash flows, whereas fund momentum loading is not. |
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