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论文作者:www.51lunwen.org论文属性:作业 Assignment登出时间:2014-06-10编辑:lzm点击率:8457
论文字数:3253论文编号:org201406092108361656语种:英语 English地区:中国价格:免费论文
关键词:Efficient Trading Market有效市场假说资本市场雷曼兄弟Momentum strategies
摘要:The study of both momentum and contrarian investment strategies is a very interesting and challenging discipline in finance, not only because the effectiveness of such strategies suggest a rejection of the EMH, but because research into the sources of these profits lies at the centre of comprehending the behaviour of market participants and how markets price securities.
Efficient Trading Market
One of the most renowned concepts of modern portfolio theory is the Efficient Market Hypothesis. According to the EMH,“capital markets are efficient in an informational sense. A capital market is considered to be efficient if, through trading activities, investors set the price of any particular security in a manner that impounds new information about that security in a direct way”(Financial Advisor Magazine, 2004).
This implies that a market is informationally efficient when current prices reflect all past and currently available information. Hence, the market price of a security can only be altered if new information, which by definition is not fully foreseeable, appears. Most importantly, the EMH presupposes that investors are rational and therefore value securities rationally. When new information comes out, investors evaluate its effect on current and future cash flows, and adjust the price of the stock to reflect the new information.
However, there are some challenges to the EMH which have been extensively documented. The two most broadly known and extensively studied are contrarian and momentum trading strategies, which presume that future returns are predictable on the basis of past returns. Momentum strategies buy stocks which have performed well in the past (winners) and sell stocks which have performed poorly in the past (losers), profiting from return continuation.
Contrarian trading strategies support the opposite method of buying past winners and selling past losers, thus generating profits from return reversals. Both these strategies, when properly carried out have been shown to generate exceptional returns. Contrarian strategies are found to be profitable at very short time horizons up to approximately one month and at long horizons of several years, whereas momentum strategies are found to be profitable at intermediate horizons of up to one year.
2. Literature Review
2.1 Momentum strategies
A momentum strategy is to buy past 1 to 12 months’ winners and to sell losers in the next 1 to 12 months. It is a straightforward trading strategy, according to which the portfolios are constructed based on cumulative return criterion over certain horizons. A “contrarian” strategy is accomplished in the same way, but winners are sold and losers are bought.
The amount of academic studies documenting the momentum strategy has been remarkable. The momentum strategy gained great importance in 1993 when a study carried out by Sheridan Titman at the University of Texas and Narasimha Jegadeesh, who was then at the University of Illinois was published.
According to Titman and Jegadeesh (Journal of Finance, 1993) “maintaining a long position in past strong performers and shorting past weak performers could earn investors abnormally large returns over a six-to 12-month horizon”. The momentum effect indicates that stocks with high returns over the past 3 to 12 months tend to outperform in the future. Historically, momentum strategies earned profits of about 1% per month over the following 12 months in the stock market (Titman and Jegadeesh, 1993) and in the foreign currency spot market (Okunev and White, 2003).
Several studies in the field of momentum strategies like the ones conducted by Jegadeesh (1990), Jegadeesh and Titman (1993, 2本论文由英语论文网提供整理,提供论文代写,英语论文代写,代写论文,代写英语论文,代写留学生论文,代写英文论文,留学生论文代写相关核心关键词搜索。