Journal of Asset Management

, Volume 12, Issue 6, pp 426–437

Momentum change, industry group rotation and portfolio returns

  • Muhammad M Islam
  • Lawrence Gomes
Original Article

DOI: 10.1057/jam.2011.24

Cite this article as:
Islam, M. & Gomes, L. J Asset Manag (2011) 12: 426. doi:10.1057/jam.2011.24
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Abstract

Prior research on momentum investing shows that over the intermediate term (3–12 months) stocks that outperform (underperform) in a previous time period continue to do so in a subsequent time period. It has also been demonstrated that similar results apply to sectors or industries. Evidence suggests that industry momentum effect is distinct from stock momentum, especially for large capitalization stocks. Accordingly, exploiting industry momentum can be an expedient way of asset allocation among sectors or industries. In this article, we propose an adjustment of momentum investing. We explore momentum change as a basis of portfolio selection. Considering long positions only, we show that the strategy produces significantly higher absolute and risk-adjusted returns when applied to the Standard and Poor's industry indices (1971–1997) relative to the simple momentum strategy of buying winners. A dummy variable regression is used to validate the results.

Keywords

momentum change industry portfolio allocation returns 

Copyright information

© Palgrave Macmillan, a division of Macmillan Publishers Ltd 2011

Authors and Affiliations

  • Muhammad M Islam
    • 1
  • Lawrence Gomes
  1. 1.Concord UniversityAthensUSA

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