Impact of ownership concentration, industry and liquidity factors on momentum effect in Malaysia and Australia
It is well documented that momentum strategies are profitable and significant in developed markets. By contrast, emerging market momentum evidence is found to be inconclusive. This suggests a continued need for further exploration in the research area, and underscores the possibility that some un...
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| Main Author: | |
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| Format: | Thesis |
| Language: | English |
| Published: |
2015
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| Online Access: | http://psasir.upm.edu.my/id/eprint/68178/1/GSM%202015%2015%20IR.pdf http://psasir.upm.edu.my/id/eprint/68178/ |
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| Summary: | It is well documented that momentum strategies are profitable and significant in
developed markets. By contrast, emerging market momentum evidence is found to be
inconclusive. This suggests a continued need for further exploration in the research
area, and underscores the possibility that some underlying attributes fundamental to the
Asian and emerging markets could be responsible for this disparity. The current study
examines a few aspects of momentum investment strategy using data from two
qualitatively distinct markets of the Asia-Pacific region – Malaysia and Australia. The
employment of these two databases helps shed different light on the performances of
momentum investment strategies in these markets and how factors ubiquitous to the
emerging markets are possibly linked to the momentum effect. The study employs
more than 700 stocks for each market and conducts analyses across the study period
spanning from 1995 to 2013.
Overall, this study finds evidence of momentum returns in both markets, although
evidence in Malaysia is less pronounced and of shorter term nature. In Australia,
momentum portfolios are significantly profitable in the short and intermediate terms. In
addition to covering a full sample period, targeted examination is also conducted over
the 1997 Asian crisis and 2006 global crisis sub-periods to evaluate the impact of
severe crisis on momentum profitability. The results are consistent with the prediction
of weaker or negative momentum during periods of severe economic downturn.
In addition to stock-level momentum, this study also finds strong evidence of industry
momentum for both the Malaysian and Australian equity market. Further analysis of
industry-neutral momentum portfolios offers indication that industry component can be
a determining factor of stock momentum.
Motivated by the lack of evidence of an association between ownership concentration
and momentum effect, the study examines the potential linkage between ownership
concentration and momentum. The results show that ownership concentration is an
attributing factor of stock momentum in Malaysia, but finds no such compelling
evidence in Australia. The Malaysian evidence is consistent with the notion that
information uncertainty associated with concentrated ownership leads to more synchronous price movements. This is in line with the unique institutional and
corporate structure of Malaysia. By implementing momentum strategies on liquidityconscious
sub-samples, the study further shows that bid-ask spread can predict the
strength and persistence of return continuation for both markets. The finding of this
analysis thus validates the conjecture that liquidity plays a determining role in
momentum, and it shed light on the relation between liquidity and momentum returns
in the emerging market context. |
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