On Evidence and Sources of International Momentum

Momentum investment strategy which buys pastintermediate-term winner stocks and sells past intermediate-termloser stocks generates positive profits over three-month toone-yearholding periods. This price anomaly has attracted a lot ofattention since it is inconsistent with the traditionalMarket-Efficiency Hypothesis. This book uses an extensiveinternational data set first to detect the existence ofinternational momentum effect, then to investigate the sources ofmomentum profits. With a sample of about 20,000 stocks from 18developed countries during 1973-2001, we find that aninternationally diversified momentum strategy earns significantpositive profits over intermediate horizons. On the sources ofmomentum profits, our findings suggest that momentum phenomenon islinked to information dissemination mechanism among investors,which is consistent with the prediction of existing behavioraltheories. Our results also indicate that investing style is not anindependent source of momentum. The analysis should be useful foracademicians who are interested in testing market efficiencyhypothesis, and may also serve as a reference for investmentprofessionals.