Predictability of future index returns based on the 52-week high strategy

Abstract

In a landmark paper, George and Hwang (2004) show that a stock's 52-week high price largely explains the momentum effect and that a strategy based on closeness to the 52-week high has better forecasting power for future returns than do momentum strategies. We find that the 52-week high strategy when applied to market indices provides mixed results. The 52 week high strategy is unprofitable for emerging markets indices, and is significantly less profitable than momentum in developed markets indices. Overall the 52week high effect is not as pervasive as is the momentum effect.