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英国金融学毕业论文-Momentum in the UK Stock Market

Momentum in the UK Stock Market(英国金融学毕业论文由英国论文网-留学生论文代写中心提供)
by
Mark Hon
and
Ian Tonks
January 2001
Discussion Paper No. 01/516
Department of Economics, University of Bristol, 8, Woodland Road, Bristol BS8
MOMENTUM IN THE UK STOCK MARKET
2
Momentum in the UK Stock Market
Abstract
This paper investigates the presence of abnormal returns through the use of trading strategies that exploit the predictability of short run stock price movements. Based on historical returns of the largest set of individual securities in the UK stock market examined to date, this paper identifies profitable momentum trading strategies as
investment tools over the period 1955-96. Our results show that returns on trading strategies cannot be accounted for by a simple
adjustment for beta-risk. Although we find evidence of size effect in the UK stock market, this phenomenon cannot explain the
momentum profits. However the paper finds that these profitable investment strategies are only apparent in the sub-sample 1977-96,
and are not present in the earlier 1955-76 period. The implication is that momentum is not a general feature of the UK stock market, but is only apparent over certain time periods.
JEL Classification
Keywords: Momentum strategies, Contrarian Strategies
MOMENTUM IN THE UK STOCK MARKET
3
Momentum in the UK Stock Market
1. Introduction
Recently there has been much work on the profitability of trading strategies in
stock markets. This work stands in stark contrast to the previously well-accepted
doctrine of the efficient markets hypothesis. Under the null hypothesis of weak-form
market efficiency, the performance of portfolios of stocks should be independent of
past returns. However empirical research has shown that asset returns tend to exhibit
some form of positive autocorrelation in the short to medium term; but mean-revert
over longer horizons. There are two prevalent types of trading methodologies used to
take advantage of serial correlation in stock price returns: momentum trading and
contrarian strategies. At one end of the spectrum, momentum strategies rely on shortrun
positive autocorrelation in returns and generates abnormal profits by buying past
winners and selling past losers. Liu, Strong and Xu (1999) report on the profitability
of momentum strategies in the UK over the period 1977-96. In contrast contrarian
strategies are based on negative serial correlation in stock prices such that selling
winners and buying losers generates abnormal profits.
The current paper assesses the profitability of momentum strategies on the UK
stock market using the most comprehensive set of data available to date. This is
important since any rejection of the efficient markets hypothesis, may be a
consequence of short span of data, and raises the question as to whether the


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