Market States and Momentum: Evidence from the Dhaka Stock Exchange

Mostafa Saidur Rahim Khan ()
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Mostafa Saidur Rahim Khan: Graduate School of Economics, Nagoya University, Furo-cho, Chikusa, Nagoya 4648601, Japan

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2017, vol. 20, issue 02, 1-19

Abstract: This study examines the momentum effect in the Dhaka Stock Exchange (DSE) listed stock returns on the basis of market states. Momentum profits are found to be significantly positive in UP market states but insignificant in DOWN market states. Momentum profits evident in UP market states are also found to revert in the long term. The evidence of short term momentum and long term reversal hold true even after adjusting for risks. In addition to short-term momentum and long-term reversal, regression coefficients also provide evidence for a positive but nonlinear relationship between momentum profits and market states. Maximum momentum profits are found at the median market performance not at the peak. Findings of this study suggest that investors’ overreaction causes momentum profits in the DSE.

Keywords: Momentum profits; market states; risk factors; overreaction hypothesis (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1142/S0219091517500114

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