Momentum Strategies and Karachi Stock Exchange

Abstract

The objectives of this study is to investigate the momentum effect in Karachi stock exchange by taking the CAPM model as an assumption of investor’s momentum hypothesis. This study analyzed 16 momentum strategies based on partial rebalancing, Docile, and equal weighted techniques. The data of 83 companies listed at KSE-100 Index from 2007 to 2014 has used for analysis. The returns of winner portfolio were positive only in 1 out of 16 strategies while the returns of zero cost portfolios were positive in four out of 16 strategies. Moreover a diminishing trend in losses stated in 14 strategies has observed. Our analysis confirmed that loser portfolio is solitarily producing profit of our zero cost portfolios. We have also examined that weather returns have been earned due to Manager Performance or Systematic Risk. In all momentum strategies the value of beta and alpha confirmed that Return can be boosted by taking short position in loser’s portfolio with respect to winner portfolio and it also confirmed that there is no need to take more excessive risk. This study concluded that Winner and winner minus loser’s portfolio firms of KSE do not follow the momentum effect while loser’s portfolio firms of KSE follow the momentum effect. This study concluded and found low and significant momentum effect at Karachi stock exchange and these results are aligned with Mohsin (2012), Ji, Griffin  and  Martin (2003), Chui, and Rouwenhorst (1999). A further possibility of momentum shall exist in KSE if the sample increases and uses the daily data of listed company at KSE-100 index.

Keywords: Karachi Stock Exchange, Momentum strategies, Momentum portfolio, Winner portfolio, Loser’s Portfolio, Zero cost portfolios, Systematic Risk.