Investor Sentiment and Momentum Profitability: A Case of Pakistan

Saleh Rahman () and Attaullah Shah
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Saleh Rahman: Institute of Management Sciences, Peshawar, Pakistan
Attaullah Shah: Institute of Management Sciences, Peshawar, Pakistan

Journal of Internet Banking and Commerce, 2017, vol. 22, issue 03, 01-19

Abstract: This study measures profitability of momentum strategies in Pakistan Stock Exchange. Further, this study compares the profitability of two price momentum strategies i.e. Jegadeesh and Titman’s winner-loser momentum strategy and Georg and Hwang 52-week high momentum strategy. Also, the study investigates the relationship momentum strategies and investor sentiment. Monthly stock prices data of all listed companies is used over the period of January 2002 to December 2015. The analysis showed that Hwang and George, 52-week high momentum strategy have higher returns as compared to Jegadeesh and Titman, momentum strategy. Further, the results showed that the investor sentiment can explain variations in momentum time-varying patterns because the 52-WH has a positive and significant relationship with investor sentiment. Momentum strategy provides a positive significant return in periods of investor optimism while the return decreases in periods of investor pessimism. The current study supports the hypothesis of the George and Hwang, that the investor’s decisions are affected by behavioral biases. Results further indicate that using investor’s sentiment; an investor can easily predict variation in stock prices occurred in the basis of changes in monetary policy, legislation, business cycles and market status.

Keywords: Momentum Strategy; 52-Week High Momentum; Investor Sentiment; Business Cycles; Financial Factors (search for similar items in EconPapers)
JEL-codes: A11 (search for similar items in EconPapers)
Date: 2017
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