Impact of Credit Risk on Momentum and Contrarian Strategies: Evidence from South Asian Markets

Ahmed Hunjra (), Tahar Tayachi, Rashid Mehmood, Sidra Malik and Zoya Malik
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Tahar Tayachi: Finance Department, Effat University, Jeddah 22332, Saudi Arabia
Rashid Mehmood: University Institute of Management Sciences, PMAS-Arid Agriculture University Rawalpindi, Rawalpindi 46000, Pakistan
Sidra Malik: University Institute of Management Sciences, PMAS-Arid Agriculture University Rawalpindi, Rawalpindi 46000, Pakistan
Zoya Malik: University Institute of Management Sciences, PMAS-Arid Agriculture University Rawalpindi, Rawalpindi 46000, Pakistan

Risks, 2020, vol. 8, issue 2, 1-14

Abstract: We examine the profitability of the momentum and contrarian strategies in three South Asian markets, i.e., Bangladesh, India, and Pakistan. We also analyze, whether credit risk influences momentum and contrarian return for these markets from 2008 to 2014. We use default risk that relates to non-payments of debts by firms as a measure of credit risk. For that purpose, we use distance to default ( DD ) by Kealhofer, McQuown, and Vasicek (KMV) model as a proxy of credit risk. We calculate the credit risk and form the momentum and contrarian strategies of the firms based on high, medium, and low risk. We find that in all three markets, the momentum and contrarian returns are significant for medium and high credit risk portfolios and no momentum and contrarian returns for low credit risk portfolios.

Keywords: momentum returns; contrarian returns; credit risk; stock market; KMV model (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (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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