Revisiting Momentum Profits in Emerging Markets

43 Pages Posted: 21 Nov 2020

See all articles by Hilal Anwar Butt

Hilal Anwar Butt

University of Karachi - Institute of Business Administration (IBA), Karachi

James W. Kolari

Texas A&M University - Department of Finance

Mohsin Sadaqat

National University of Sciences and Technology (NUST)

Date Written: October 3, 2020

Abstract

This study investigates the cross-sectional and time-series properties of momentum returns in 19 emerging market countries. In general, consistent with previous studies, momentum strategies in emerging markets underperform those in the U.S. and other developed markets. To help reconcile these differences, we show that momentum profits are negatively exposed to market and liquidity factors, which is more important in down market states. Given higher market returns and lower liquidity in emerging markets, this negative exposure tends to increase momentum crashes when market rebounds after depressed market conditions and, in turn, lower momentum returns in emerging market countries. Finally, risk management of momentum reduces exposure to market and liquidity factors, thereby boosting returns, Sharpe ratios, and asset pricing model alphas.

Keywords: emerging markets, liquidity, momentum, risk management

JEL Classification: G11, G12

Suggested Citation

Butt, Hilal Anwar and Kolari, James W. and Sadaqat, Mohsin, Revisiting Momentum Profits in Emerging Markets (October 3, 2020). Available at SSRN: https://ssrn.com/abstract=3704504 or http://dx.doi.org/10.2139/ssrn.3704504

Hilal Anwar Butt

University of Karachi - Institute of Business Administration (IBA), Karachi ( email )

University Road
Karachi, Sindh 75270
Pakistan

James W. Kolari (Contact Author)

Texas A&M University - Department of Finance ( email )

MS-4218
Department of Finance
College Station, TX TX 77843-4218
United States
979-845-4803 (Phone)
979-845-3884 (Fax)

Mohsin Sadaqat

National University of Sciences and Technology (NUST) ( email )

Pakistan

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