THE MOMENTUM EFFECT IN THE CHILEAN STOCK MARKET

Nicolás Espinoza () and Tomás Espinoza ()
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Nicolás Espinoza: Contraloria General de la República
Tomás Espinoza: Escuela de Administración,Pontificia Universidad Católica de Chile

Abante, 2014, vol. 12, issue 1, 1-32

Abstract: The Momentum effect is a capital market puzzle. International evidence has found anomalies that market efficiency-based explanations have been so far unable to explain. If it is pervasive, the Momentum effect should be present in the Chilean market as well. From the perspective of the existing literature, this is an out-of-sample test of the effect and thus constitutes our main motivation. This paper mainly follows the methodology proposed by Jegadeesh and Titman (1993, 2001) and finds a strong presence of the momentum effect. Ignoring transaction costs, trading strategies consisting of buying past winners and selling past losers, earn significant abnormal returns in the period July 1991 - September 2008. We also study possible empirical regularities in this behavior, finding non discernible patterns in performance. Nonetheless, such patterns arise in terms of persistence: aggregate economic shocks affect the profit levels from a Momentum-based strategy but do not affect its statistically significant presence throughout the business cycle.

Keywords: Asset pricing; market efficiency; momentum; trading strategies; emerging markets; Chile (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2014
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