Enhancing momentum profits in the Taiwan Stock Market: The role of extreme absolute strength

Chaonan Lin, Chuanxin Xia, Nien-Tzu Yang and Sheng-Yung Yang

Pacific-Basin Finance Journal, 2020, vol. 59, issue C

Abstract: We show that stocks with extreme absolute strength are highly volatile and thus attenuate the profitability of momentum in Taiwan, a market that has been widely documented as an exception of the momentum phenomenon. An enhanced momentum strategy that removes these stocks from the winner and loser portfolios generates significant profitability in the intermediate term. A major advantage of the enhanced momentum strategy is its robust profitability over time. More importantly, it is free from the momentum crashes. We provide further evidence to show that return dispersion and information uncertainty are closely related to momentum profitability in the cross-section when stocks with extreme absolute strength are removed.

Keywords: Momentum; Absolute strength; Extreme past returns; Taiwan Stock Market (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:59:y:2020:i:c:s0927538x19303993

DOI: 10.1016/j.pacfin.2019.101258

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