SSE/EFI Working Paper Series in Economics and Finance
No 536:
Is Momentum Due to Data-Snooping?
Johan Ericsson ()
and Andrés González ()
Abstract: This paper explores the profitability of portfolio-based
momentum strategies. The data consists of all NYSE, AMEX, and NASDAQ stocks
on the CRSP database. The analysis considers the period July 1963 to
December 2002 and the tests are performed on portfolios formed on industry,
size and book-to-market. The departure from earlier studies lies in the way
we test for profitability. To avoid the serious problem of data-snooping we
apply the procedure provided by White (2000). Overall, we find strong
evidence of a momentum effect where an investor takes a long position on
the winner portfolio and a short position on the loser portfolio. Hence, we
reject the hypothesis of weak market efficiency. Splitting the sample in
two parts, 1963:07 to 1981:12 and 1982:01 to 2002:12 we found that the best
momentum strategy was profitable during the first period and not during the
second. The overall significance is thus driven by events in the earlier
part of the sample and it appears that the market has become more
efficient.
Keywords: Momentum; Data-snooping; Bootstrap; (follow links to similar papers)
JEL-Codes: G11; G12; G14; (follow links to similar papers)
13 pages, September 25, 2003
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