2009-07: Predictability of Future Index Returns based on the 52 Week High Strategy (Working paper)
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Author(s)
Malin, Mirela
Bornholt, Graham
Year published
2009
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George and Hwang (2004) show that a stock's 52-week high price explains the momentum effect and that a strategy based on closeness to the 52-week high has better forecasting power for future returns than those strategies based on past returns. In contrast to the existing research at company level, this paper shows that the 52-week high ratio has weak or no predictive power when applied to market indices. In the developed markets, the strategy is weakly profitable and underperforms the momentum strategy while in the emerging markets the strategy earns negative returns. These results also contradict Du (2008) who finds that a ...
View more >George and Hwang (2004) show that a stock's 52-week high price explains the momentum effect and that a strategy based on closeness to the 52-week high has better forecasting power for future returns than those strategies based on past returns. In contrast to the existing research at company level, this paper shows that the 52-week high ratio has weak or no predictive power when applied to market indices. In the developed markets, the strategy is weakly profitable and underperforms the momentum strategy while in the emerging markets the strategy earns negative returns. These results also contradict Du (2008) who finds that a 52-week high index strategy dominates momentum in the developed markets.
View less >
View more >George and Hwang (2004) show that a stock's 52-week high price explains the momentum effect and that a strategy based on closeness to the 52-week high has better forecasting power for future returns than those strategies based on past returns. In contrast to the existing research at company level, this paper shows that the 52-week high ratio has weak or no predictive power when applied to market indices. In the developed markets, the strategy is weakly profitable and underperforms the momentum strategy while in the emerging markets the strategy earns negative returns. These results also contradict Du (2008) who finds that a 52-week high index strategy dominates momentum in the developed markets.
View less >
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Copyright © 2010 by author(s). No part of this paper may be reproduced in any form, or stored in a retrieval system, without prior permission of the author(s).
Note
Finance
Subject
G15 - International Financial Markets
G14 - Information and Market Efficiency; Event Studies
52-week high
Momentum
Developed and emerging markets
Index returns