Market states and momentum in sector exchange-traded funds

Ding Du, Karen Craft Denning and Xiaobing Zhao
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Karen Craft Denning: Finance and International Business, Silberman College of Business, Fairleigh Dickinson University

Journal of Asset Management, 2014, vol. 15, issue 4, No 2, 223-237

Abstract: Abstract We provide a clean out-of-sample test of momentum effects by focusing on a new sample period and a new set of test assets. More specifically, we examine market states and momentum in sector exchange-traded funds (ETFs) in the post-2000 period. Our results suggest that there is no momentum in sector ETFs, and that momentum does not depend on market states in the recent decade. Our findings have important theoretical as well as practical implications. In terms of theoretical implications, models attempting to explain momentum now have a higher hurdle to meet in that these models need to explain why momentum does not seem to exist in the recent decade. In terms of practical implications, our findings suggest that in capital budgeting, portfolio evaluation, investment and risk analysis decisions, caution should be exercised in using the models that take into account momentum effects.

Keywords: momentum; exchange-traded funds; market states (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1057/jam.2014.24

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