TRIMMING EFFECTS AND MOMENTUM INVESTING

H. W. Wayne Yang, Po-Wei Shen and An-Sing Chen

The International Journal of Business and Finance Research, 2020, vol. 14, issue 2, 73-87

Abstract: This study tests the effects of outlier trimming (or truncation) on the performance of momentum portfolios. We test the hypothesis that outliers are essential and possess carry-over effects applicable to momentum investing. Our results support the hypothesis. We find momentum portfolios formed using untrimmed data produce higher returns than those formed using outlier trimmed data. Risk-adjusted results show the same results. Moreover, we find that the less the data are trimmed, the larger the resulting spread between the winner and loser portfolios formed from momentum. Finally, our results show that the trimming effect continues to exist even after distinguishing between UP and DOWN market states

Keywords: Trimming Level; Trading Strategies; Investment Strategies (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G17 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:ibf:ijbfre:v:14:y:2020:i:2:p:73-87

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