Sources of Industry Momentum Effect - Weekly Data Evidence

Abstract

This study employs industry weekly return data for Taiwan in order to investigate the industry_x000D_ momentum profit sources of an emerging country. It differs from past studies (e.g., Pan et al.,_x000D_ 2004 and Du, 2008), which adopted weekly data to observe the industry momentum sources_x000D_ with a short horizon, in that it investigates the industry momentum sources with a long_x000D_ horizon as well as a short horizon. The results show that there exists a significant industry_x000D_ reversal effect in Taiwan, which indicates that investors in Taiwan exhibit behavior_x000D_ characterized by overreaction but not underreaction. After dividing the industry momentum sources into cross-autocovariances among industries, own-autocovariances for each_x000D_ individual industry and cross-sectional variation in mean returns, we find that the sources of the short-horizon industry momentum effect in Taiwan mainly come from the negative_x000D_ industry own-autocorrelation returns. The main source of the long-horizon industry_x000D_ momentum effect is the cross-autocovariance before 2002, while the own-autocovariance is_x000D_ the driving force after 2002.