Including emerging markets in international momentum investment strategies |
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| Affiliation: | 1. Department of Economics & Finance, Southern Illinois University Edwardsville, Edwardsville, IL 62026-1102, United States;2. Department of Economics, University of Texas — San Antonio, One UTSA Circle, San Antonio, TX 78249, United States;3. Institute of Financial Studies, Southwestern University of Finance and Economics, Chengdu 610074, China;1. PBC School of Finance, Tsinghua University, China;2. Department of Finance, The University of Melbourne, Australia;1. Aalto University School of Business, P.O. Box 11110, 00076 Aalto, Finland;2. Mandatum Life Insurance Company Limited, P.O. Box 627, 00101 Helsinki, Finland;1. Lee Kong Chian School of Business, Singapore Management University, 50 Stamford Road, 178899, Singapore;2. School of Economics, Singapore Management University, 90 Stamford Road, 178903, Singapore;3. Olin School of Business, Washington University in St. Louis, 1 Brookings Drive, St. Louis, MO 63130, USA;4. China Academy of Financial Research (CAFR), 211 West Huaihai Road, Shanghai 200030, China |
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| Abstract: | Momentum return investment strategies that diversify across countries provide lower portfolio standard deviations and/or increased expected returns. These diversification benefits are larger when adding emerging markets than when adding developed markets, and they are larger than would be suggested by diversifying with long-only portfolios. Using data on almost 16,000 firms from 22 developed and 18 emerging markets over the 1990–2004 period, we confirm the profitability of momentum trading strategies in both developed and emerging markets and document the diversification benefits of including emerging markets in an international momentum portfolio investment strategy. |
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