Article

Momentum Effect in Indian Stock

Market: A Sectoral Study

Global Business Review

16(3) 494510
2015 IMI
SAGE Publications
sagepub.in/home.nav
DOI: 10.1177/0972150915569940
http://gbr.sagepub.com

Ashish Kumar Garg1

Pankaj Varshney2
Abstract
Jegadeesh and Titman (1993) found that when stocks are ranked on the basis of their past returns,
then past winners outperform the past loser in the medium-term period. They suggested a zeroinvestment trading strategy termed momentum trading strategy, consisting of taking long position in
the winner portfolio and short position in the loser portfolio, to generate abnormal profit. In this article, we demonstrated that the momentum trading strategy is robust in Indian stock market over the
period of 20002013. We evaluated a range of trading strategies over alternative backward-looking
ranking periods and forward-looking holding horizons in some prominent industries in India and found
strong presence of momentum returns in various industries. The same conclusion we have drawn
about the market as a whole that provides evidence against weak form of market efficiency.
Keywords
Momentum trading, stock market efficiency, Jegadeesh and Titman momentum strategy

Introduction
Over the years, numerous strategies have been developed to predict the returns of stocks that could lead
the abnormal profits. Predicting returns of assets based on their past returns has gained importance in
recent years. Broadly, there are two trading strategies based on prior returns: (i) momentum strategy
where returns exhibit continuation in short run and (ii) contrarian strategy where returns have a tendency
to revert to fundamental in long run.
Momentum-based investment strategy calls for buying todays winners and selling todays
losers with an assumption that past pattern would continue in the future, resulting in past winners
generating superior returns compared to past losers. Several behavioural theories have evolved to

Indian Institute of Management Kashipur, Kashipur, Uttarakhand.

Lal Bahadur Shastri Institute of Management, Delhi.

1
2

Corresponding author:
Ashish Kumar Garg, Assistant Professor, Indian Institute of Management Kashipur, Bazpur Road, Kashipur, Udham Singh Nagar,
Uttarakhand 244713.
E-mail: drashishgarg80@gmail.com

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explain the reasons of the momentum phenomenon. Some of them are reported as follows: initially
underreaction and eventually overreaction to firm specific news (Chan et al., 1996; Barberis et al.,
1998; Hong and Stein, 1999), low analyst coverage (Hong et al., 2000), post-holding period reversal
(Jegadeesh and Titman, 2001), missing risk factors related to valuation (Fama and French, 1996;
Antoniou et al., 2007), cross sectional variation in mean returns of individual securities (Conrad and
Kaul, 1998), investors overconfidence about their own abilities (Danielet al., 1998), time-varying
expected return (Back et al., 1999; Chodia and ShivKumar, 2000), time series predictability in stock
market (Chan et al., 2000), excess covariance (Lewellen, 2002), non-parametric adjustment of risk
(Ahn et al., 2003), disposition effect (Shefrin and Statman, 1985; Grinblatt and Han, 2005). On the contrary, contrarian investment strategy calls for adopting an opposite strategy to buy past losers and sell
past winners. This is based on the assumption that market tends to overreact in short run and revert
to fundamental in long run. De Bondt and Thaler (1985, 1987) were the first to document contrarian
strategy and found individuals overreacting to new, first and subsequent price corrections, leading to
return reversal thereafter.
Existence of abnormal profits by following either of the strategies violate the weak form of the market
efficiency that implies the absence of abnormal profit for the same risk level. Hence, in the absence of
the weak form of market efficiency, the asset pricing anomalies help managers develop trading strategies
that provide extra returns. Thus, fund managers chase them to gain from these trading strategies. This
article examined the abnormal returns for portfolios on the basis of long-term past returns in Indian
industrial sectors.
The article is organized as follows. In Section 2, we review the existing literature. Section 3 contains
description of data and the methodology employed along with the empirical tests carried out. Section 4
summarizes the finding of our empirical research and Section 5 presents concluding comments.

Review of Literature
In recent times, a significant body of literature has evolved that examined the significance of the
momentum effect in developed as well as developing markets. The theoretical studies differ in their
explanation of what might cause creation of momentum, while the empirical studies have focused
on testing the effect that momentum has on financial markets. The basic objective of the underlying
article is to verify the existence of the momentum trading strategy in Indian stock market. Some
similar studies carried by the researcher on different stock markets have been reviewed here.
Levy (1967) claimed the success of trading strategy of buying stock with current prices significantly higher than last 27 weeks average price generating significantly abnormal return in US market.
Jensen and Bennington (1970) proposed 68 trading strategies based on their past performance and stated
that Levi trading rule based on the relative strength was one out of them. Jegadeesh and Titman (1993)
documented the momentum trading strategy by evaluating 16 trading strategies based on returns over
the past 14 quarters and holding them for subsequent 14 quarters. They found that these trading strategies that buy past winners and sell past losers realized significant abnormal returns over a period from
1965 to 1989 for US markets. Chan et al. (1996) report comparable profits from momentum strategies
based on all stocks listed on NYSE, AMEX and NASDAQ for the period from January 1977 to 1993.
Similarly, Foerster et al. (1994), Kan and Kirikos (1996), Cleary and Inglis (1998) found presence of
short-run momentum effect in Canadian market. Rouwenhorst (1998) reported significant momentum
effects in 11 out of 12 European countries. Conrad and Kaul (1998), Lee and Swaminathan (2000),
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Chodia and Shivakumar (2002) found significant momentum profits on the NYSE over holding periods
ranging from 3 to 12 months.
Chui et al. (2000) reported significant momentum effects in seven out of eight Asian countries
(Japan was the exception). Jegadeesh and Titman (2001) performed an out-of-sample test of their
earlier findings and showed that momentum strategies continue to be profitable and that past winners
outperform past losers by approximately the same magnitude over the time period from 1990 to 1998 as
in the earlier period in United States. Nijman et al. (2002) found momentum profits in 18 European
countries except for Sweden and Austria. Hurn and Pavlov (2003), Demir et al. (2004) and Stork (2008)
found momentum profits in Australia, while Gunasekarage and Kot (2007), Stork (2008), Trethewey and
Crack (2010) reported same in New Zealand. Shen et al. (2005) examined the performance of momentum
strategies in 18 developed capital markets using country indices instead of individual security returns
and found momentum profits for medium-time horizons. Aviinis and Pajuste (2007) studied a sample of
stock market returns for seven countriesthe Baltic States, Poland, Slovenia, Hungary and Croatia
for time period from January 2002 to December 2006 using the methodology of Jegadeesh and
Titman (1993), and most pronounced momentum effect was found for time periods of 6 months of
portfolio formation and 6 months for subsequent abnormal returns with average monthly return of
3 per cent for winner-minus-loser portfolio. Leippold and Lohre (2008) reported significant momentum
effects in the United States and 14 out of 16 European countries, only Ireland and Austria were exceptions.
Wang et al. (2010) used the sample with 539 individual stocks in Taiwan stock market from July
2002 to December 2007 for comparing the performances among these portfolios of institutional net
buys/sells by using Jegadeesh and Titman (JT) momentum strategy and George and Hwang (GH)
momentum strategy and found short-term momentum with no waiting period in Taiwans market. Hu
and Chen (2011) examined the performance of momentum investment strategies over the national
stock market indices of 48 countries during 19992007. Their findings indicated that momentum
investment methods exhibit significant continuation of returns over the medium horizon. Pathirawasam
et al. (2011) provided empirical evidence for the existence of a momentum anomaly on the Colombo
Stock Exchange during the period January 1992December 2007. Same conclusions have been drawn
for the Egyptian market by Ismail (2012).
A few studies have been carried in Indian context also, for instance, Sehgal and Balakrishnan (2004)
evaluated momentum and contrarian effect in stock returns for the Indian equity market and found the
presence of momentum returns in India. Joshipura (2011) examined the profitability of the momentum
strategy in the Indian market and found a significant momentum return for the post-formation period
ranging from 3 to 12 months. Saravanakumar (2011) tried to find out the stock price momentum after
dividend announcement and found no indication of the same. Joshipura and Mankar (2012) found the presence of momentum profit in short run. Sehgal et al. (2012) attempted to find various pricing anomalies
including momentum effect in Indian stock market and found the presence of short-term momentum.
The motivation of this research is fourfold. First, most of the previous studies of momentum strategies
concentrate on developed markets, which is clear from literature review also. The second motivation of
this article resides in conflicting results of momentum strategies for emerging capital markets reported
by previous authors. The third motivation is to update the existing literature up to recent time with a big
and diverse sample size. Fourthly, majority of the studies have been carried on the overall markets
indices; it may possible that degree of momentum varies industries to industries, so it is a motivation
for this article to find out the momentum in specific sectors also. This article contributes to the
existing literature on the subject by examining momentum return during extreme periods in the Indian
Stock Market. In particular, we extend the previous studies by providing the evidence using the most
recent data ranging from the period May 2000 to April 2013 and finding the momentum effect in
some prominent industries.
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Data and Methodology

Sample Selection
The objective of the article is to test the presence of momentum profit in some of the prominent sectors
of Indian economy. The sample selected for the article consists of the stocks listed on the National
Stock Exchange of India, as it is representative stock exchange of India. In order to find out the moment
in sectorial indices, banking, information and technology, pharmaceuticals and automobile industries
have been selected, as these are four major sectors of Indian economy in terms of their contribution
in gross domestic production. All the companies listed at NSE under these four sectors have been
taken earlier, but to eliminate the size effect, only large cap companies belonging to these sectors
have been considered as final sample. 40 companies in banking sector, 31 companies in pharmaceutical, 20 companies in information and technology and 20 companies in automobile sector qualified the
final selection criteria.
To determine the impact of portfolio diversification, we have applied the same methodology on CNX
500 Index too. The CNX 500 is Indias first broad-based benchmark of the Indian capital market.
It represents about 95.87 per cent of the free-float market capitalization of the stocks listed on NSE as on
March 28, 2013, and total traded value, for the last six months ending on March 2013, of all index
constituents is approximately 94.60 per cent of the traded value of all stocks on NSE. It represents
69 industries. The sample selection also seems logical, as NSE 500 index companies are heavily traded
and there is less liquidity risk associated with them, which would give reasonably large sample having
high liquidity and eliminates stock with small size. This is important to overcome the limitation of
results being driven and distorted by small and illiquid stocks that face problems of high risk and bid-ask
bounce, respectively.

Data Collection
The monthly adjusted closing price is extracted from Prowess database maintained by the Centre for
Monitoring Indian Economy for a period of 13 years, ranging from May 2000 to April 2013.This period
covers the strong bull run between 2004 and January 2008, the global financial meltdown of 20082009
and then the recovery period thereafter. Thus, this period signifies all the major ups and downs in the
Indian equity markets. The sample shares adjusted closing price series are converted into logarithmic
return series so that these series can be used for further estimation. All stocks with non-missing returns
in formation and testing period are considered for analysis.

Methodology
This article used the JT methodology after incorporating the modification suggested by Mankar and
Joshipura (2012). We have used the actual returns recommended by Mankar and Joshipura for the
analysis on the place of abnormal return. It helps to maintain the robustness of analysis and make analysis
easier. We have used J months for formation of winner and loser portfolios and K months as test
period. Such a strategy called J K strategy. This article used 36 strategies using various combinations
of J and K using value 1, 2, 3, 6, 9 and 12 months. The estimation procedure for all 36 strategies is
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Global Business Review 16(3)

similar. A brief explanation of the same is presented here using an example of 6 months formation period
(J = 6) and 6 months test period (K = 6).
In case of a 6 6 strategy, the analysis is performed using first 6 months data for portfolio formation
and next 6 month data for portfolio testing. As our article used 156 months data (from May 2000 to
April 2013), there are 144 winners (W) and 144 losers (L) portfolios each for the testing period. In order
to form a winner and loser portfolio, 6 months cumulative return (CR) has been calculated, starting
from May 2000 to October 2000, using following formula:
CR i = ln ^ P1/P0h + ln ^ P2/P1h + ln ^ P3/P2h + ln ^ P4/P3h + ln ^ P5/P4h + ln ^ P6/P5h,
where P0, P1, P2, P3, P4, P5 and P6 are adjusted, monthly closing prices from April, May, June, July,
August, September and October, respectively.
At the end of October, stocks in the samples are ranked using the past six months CRs. In the case
of the sector-specific study, winner portfolio consists of top five securities based on CR, while loser
portfolio consists of bottom five securities that performed worst over the last 6 month in terms of
CRs. In the case of CNX 500, top 50 and bottom 50 companies are considered for forming the winner
and loser portfolio. The same process is repeated on monthly basis and 144 iterations have been done for
the sample period. Use of the overlapping period for the study has an advantage of improving the power
of the test.
In the second step, monthly basis average return of the whole winner and loser portfolio is calculated
using the following equation:
AR W, 7 = Average (Pi, 7 /Pi, 6) + (P j, 7 /P j, 6) + (Pk, 7 /Pk, 6) + (Pl, 7 /Pl, 6) + (Pm, 7 /Pm, 6),
where ARW,7 is the average return of the winner portfolio for November, Pi,7, Pi,6, Pj,7, Pj,6, Pk,7, Pk,6, Pl,7,
Pl,6, Pm,7, Pm,6 are the adjusted closing price of top five performer stocks (basis of 6 month historical
return) for the month November and December, respectively. Likewise, average returns have been
calculated for the winner and loser portfolios separately for each of the 144 iterations.
In the third step, monthly average return of the winner and loser portfolios have been used to calculate
cumulative average returns (CARs) in each month in the following way:
CAR W, 12 = AR w, 7 + AR w, 8 + AR w, 9 + AR w, 10 + AR w, 11 + AR w, 12,
where CARW,12 is cumulative average return of winner portfolio for month of April, ARW,7, ARW,8,
ARW,9, ARW,10, ARW,11, ARW,12, average return of winner portfolio for November, December, January,
February, March and April. In the same way, CAR has been calculated for all 144 winner and loser
portfolios.
In the final step, mean cumulative average returns (MCARs) have been calculated by averaging of
144 portfolios CAR using following equation:
MCAR 6 # 6 = (CAR 1 + CAR 2 + + CAR 144) /144,
where MCAR6 6 is mean average CR for 6 6 months strategy and CAR1 is cumulative average return
of first winner portfolio.
MCARW (MCARL) indicates how much cumulated returns stock in the winner (loser) portfolio
earn on an average during 6 months of test period. If the market follows weak form of efficiency, then
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Garg and Varshney

MCARW minus MCARL must be equal to zero, suggesting absence of abnormal return. Momentum
hypothesis implies that MCARW MCARL is positive. In the case of existence of the momentum returns,
winner portfolio always beat the loser portfolio, irrespective of the direction of the market movement,
thereby generating absolute positive abnormal returns.

Empirical Results
As stated earlier, J and K months investment strategy suggested by Jegadeesh and Titman (1993) has
been adopted with certain modifications as suggested by Mankar and Joshipura (2012). Momentum
profits are detected for trading strategies that confine both their portfolio formation and portfolio holding
windows to 12 months or less.
Table 1 presents the MCAR generated by all 36 strategies in auto sector. The table indicates that
keeping the holding period constant as the formation period increases from 1 month to 12 months,
MCARs are generated by buying winners; selling losers and buying winners and selling losers simultaneously (momentum portfolio) also increases in case of all 36 strategies. As we increase the holding
period by keeping the formation period constant, winner portfolios generated maximum MCAR in
the case of 12 month holding period, while MCAR of loser portfolio turned positive after 6 month.
The interesting point is that as we increase the formation period for loser portfolio, the number of month
for which the portfolio generates negative MCAR also increases. For 1 month formation period, the
portfolio started generating positive MCAR 7th month onwards, while in the case of 12 month holding
period, portfolio starts generating positive MACR only in the 12th month. This indicates a portfolio
that has been a loser portfolio since long period, takes long time to revert to its fundamental value. In all,
12 months formation and 12 months holding period strategy generated the maximum momentum return
of 5.589 per cent, and during all 36 strategies, buying winners portfolio always generated a higher
return than the selling loser portfolio. Tables 2 and 3 present the momentum returns in banking and
pharmaceutical sectors, respectively. The MCAR patterns for winner, loser and momentum portfolios
in these industries are more or less similar to auto sector. Again the maximum profit is generated
by 12 12 strategy.
Table 4 gives the results pertaining to information and technology sector that shows some different
pattern of MCAR. Except for the 12 months formation period, for all other formation period, 9 months
holding of momentum portfolio gave the maximum return. In the 12 month testing period, the MCAR of
loser portfolio remained negative. Table 5 provides the MACR results for CNX 500 Index. The results
of market index are similar to auto, banking and pharma sector, but over here, similar to the IT sector,
loser portfolio has negative MCAR throughout the 12-month time frame.
In order to check the statistical significance of the momentum return, t test has been applied on the
MCARs data of 12 12 trading strategies, and momentum return is found highly significant across four
sectors and market index.
It may be seen from the Figures 15 that the MACRs of winner and loser portfolios increase
throughout the testing period of 12 months in all five cases. It may also be seen that the MCAR of
winner portfolio is increasing at a faster pace than the MCAR of loser portfolio, resulting in the winner
portfolio divergence from the loser portfolios till the last month. Winner portfolios outperformed
the loser portfolios throughout in all 36 investment strategies and in all sectors as well as in the stock
market too. It proves the existence of momentum profit in Indian stock market. If we review the momentum profit vis--vis to sectors and market index, then market index yielded higher momentum profit as
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0.135
0.135
0.146
0.135
0.147
0.156
0.136
0.148
0.158
0.189
0.200
0.219
0.137
0.149
0.160
0.192
0.202
0.221
0.247
0.265
0.283
0.137
0.149
0.159
0.190
0.201
0.221
0.248
0.265
0.283
0.300
0.320
0.340

0.097
0.096
0.077
0.097
0.076
0.057
0.097
0.076
0.058
0.051
0.026
0.011
0.098
0.077
0.057
0.050
0.025
0.010
0.005
0.022
0.042
0.098
0.077
0.056
0.050
0.024
0.007
0.008
0.025
0.045
0.062
0.082
0.093

1 Month
0.232
0.232
0.223
0.232
0.223
0.213
0.233
0.224
0.216
0.240
0.226
0.230
0.234
0.226
0.217
0.242
0.228
0.231
0.242
0.244
0.241
0.235
0.225
0.216
0.240
0.225
0.228
0.239
0.241
0.237
0.238
0.239
0.247

M
0.200
0.201
0.310
0.200
0.310
0.342
0.203
0.314
0.347
0.391
0.427
0.462
0.204
0.316
0.350
0.396
0.432
0.467
0.513
0.555
0.589
0.204
0.315
0.349
0.394
0.430
0.466
0.513
0.555
0.589
0.630
0.671
0.705

W
0.131
0.130
0.173
0.131
0.173
0.141
0.131
0.174
0.142
0.122
0.087
0.045
0.132
0.175
0.142
0.120
0.085
0.043
0.009
0.025
0.063
0.133
0.175
0.142
0.120
0.083
0.039
0.003
0.031
0.071
0.112
0.142
0.166

2 Months
0.331
0.331
0.483
0.332
0.484
0.483
0.334
0.488
0.489
0.513
0.514
0.507
0.336
0.491
0.492
0.516
0.517
0.510
0.522
0.530
0.525
0.337
0.490
0.490
0.513
0.513
0.505
0.516
0.523
0.518
0.519
0.530
0.539

M
0.255
0.255
0.446
0.256
0.446
0.565
0.260
0.453
0.575
0.628
0.680
0.741
0.260
0.455
0.577
0.632
0.685
0.746
0.810
0.874
0.932
0.261
0.454
0.576
0.628
0.681
0.743
0.808
0.873
0.932
0.983
1.031
1.080

W
0.152
0.152
0.237
0.153
0.239
0.262
0.152
0.238
0.263
0.227
0.183
0.135
0.154
0.240
0.264
0.226
0.180
0.132
0.079
0.022
0.037
0.154
0.241
0.265
0.226
0.180
0.129
0.073
0.013
0.046
0.104
0.151
0.202

L
0.407
0.407
0.683
0.408
0.685
0.827
0.412
0.692
0.837
0.855
0.863
0.876
0.414
0.695
0.841
0.858
0.865
0.878
0.889
0.895
0.896
0.415
0.696
0.840
0.855
0.861
0.872
0.881
0.886
0.886
0.878
0.879
0.878

M
0.406
0.409
0.770
0.410
0.774
1.093
0.413
0.782
1.104
1.378
1.605
1.786
0.413
0.782
1.105
1.381
1.609
1.792
1.923
2.052
2.178
0.417
0.788
1.113
1.388
1.616
1.799
1.932
2.063
2.190
2.311
2.426
2.540

W
0.192
0.191
0.323
0.191
0.323
0.404
0.191
0.324
0.406
0.441
0.424
0.357
0.192
0.325
0.406
0.440
0.420
0.350
0.235
0.123
0.012
0.191
0.323
0.402
0.435
0.415
0.342
0.223
0.108
0.007
0.125
0.237
0.347

6 Months

Formation Period
3 Months

Source: Produced by the authors. Raw data has been collected from CMIE Database.

12 Months

9 Months

6 Months

3 Months

1 Month
2 Months

Table 1. MCARS Generated by Various Trading Strategy in Auto Sector

Holding Period

0.598
0.599
1.093
0.601
1.097
1.497
0.605
1.106
1.510
1.819
2.029
2.143
0.606
1.107
1.511
1.820
2.029
2.142
2.158
2.176
2.190
0.608
1.111
1.515
1.824
2.031
2.142
2.155
2.171
2.183
2.186
2.189
2.194

M
0.548
0.550
1.055
0.551
1.058
1.525
0.554
1.063
1.532
1.963
2.354
2.702
0.557
1.068
1.541
1.973
2.365
2.714
3.018
3.282
3.504
0.557
1.068
1.543
1.978
2.372
2.724
3.031
3.296
3.518
3.699
3.884
4.071

W
0.207
0.207
0.366
0.207
0.367
0.479
0.207
0.366
0.478
0.551
0.580
0.567
0.205
0.362
0.471
0.541
0.568
0.552
0.493
0.391
0.251
0.206
0.363
0.469
0.536
0.558
0.538
0.474
0.367
0.222
0.034
0.158
0.351

9 Months
0.755
0.756
1.422
0.758
1.424
2.004
0.760
1.429
2.010
2.514
2.934
3.269
0.762
1.431
2.012
2.515
2.933
3.266
3.511
3.673
3.754
0.762
1.431
2.012
2.514
2.931
3.262
3.504
3.662
3.740
3.733
3.726
3.720

M
0.675
0.676
1.315
0.678
1.318
1.918
0.684
1.329
1.933
2.501
3.032
3.524
0.683
1.328
1.936
2.508
3.044
3.539
4.000
4.422
4.805
0.685
1.332
1.940
2.512
3.048
3.548
4.015
4.444
4.833
5.185
5.500
5.780

0.212
0.212
0.380
0.212
0.379
0.508
0.208
0.373
0.499
0.594
0.647
0.661
0.209
0.373
0.495
0.584
0.632
0.641
0.611
0.540
0.427
0.208
0.370
0.492
0.580
0.627
0.630
0.592
0.513
0.394
0.238
0.043
0.191

12 Months
0.887
0.888
1.695
0.890
1.697
2.427
0.892
1.702
2.432
3.094
3.679
4.185
0.892
1.701
2.431
3.092
3.676
4.181
4.611
4.962
5.232
0.893
1.702
2.432
3.092
3.675
4.178
4.606
4.957
5.227
5.423
5.542
5.589

Downloaded from gbr.sagepub.com by guest on July 6, 2016

0.157
0.157
0.166
0.158
0.168
0.175
0.160
0.169
0.178
0.195
0.208
0.222
0.160
0.170
0.180
0.198
0.212
0.226
0.240
0.256
0.277
0.160
0.169
0.178
0.195
0.210
0.226
0.240
0.256
0.278
0.297
0.315
0.328

L
0.109
0.108
0.090
0.108
0.089
0.067
0.108
0.089
0.065
0.045
0.026
0.010
0.109
0.090
0.065
0.044
0.024
0.007
0.007
0.019
0.030
0.110
0.092
0.068
0.048
0.027
0.009
0.007
0.020
0.031
0.052
0.065
0.081

M
0.266
0.265
0.256
0.266
0.257
0.242
0.268
0.258
0.243
0.240
0.234
0.232
0.269
0.260
0.245
0.242
0.236
0.233
0.233
0.237
0.247
0.270
0.261
0.246
0.243
0.237
0.235
0.233
0.236
0.247
0.245
0.250
0.247

W
0.223
0.224
0.338
0.224
0.339
0.359
0.228
0.344
0.364
0.397
0.428
0.457
0.228
0.345
0.367
0.402
0.434
0.464
0.497
0.529
0.569
0.229
0.345
0.365
0.399
0.433
0.466
0.501
0.533
0.574
0.620
0.662
0.699

0.142
0.140
0.183
0.141
0.182
0.135
0.139
0.180
0.131
0.081
0.042
0.008
0.142
0.183
0.133
0.081
0.040
0.005
0.031
0.056
0.079
0.143
0.186
0.137
0.086
0.045
0.009
0.030
0.057
0.080
0.110
0.141
0.170

2 Months
M
0.365
0.364
0.521
0.365
0.521
0.494
0.367
0.524
0.495
0.478
0.470
0.465
0.370
0.528
0.500
0.483
0.474
0.469
0.466
0.473
0.490
0.372
0.531
0.502
0.485
0.478
0.475
0.471
0.476
0.494
0.510
0.521
0.529

W
0.276
0.278
0.468
0.278
0.469
0.585
0.283
0.477
0.593
0.636
0.692
0.745
0.281
0.476
0.595
0.641
0.701
0.756
0.806
0.851
0.905
0.283
0.477
0.593
0.636
0.694
0.751
0.805
0.851
0.906
0.963
1.022
1.075

L
0.163
0.162
0.241
0.162
0.240
0.243
0.160
0.235
0.237
0.171
0.110
0.057
0.164
0.241
0.242
0.174
0.111
0.057
0.006
0.038
0.079
0.165
0.245
0.248
0.183
0.121
0.066
0.011
0.037
0.082
0.125
0.167
0.206

M
0.439
0.440
0.709
0.440
0.709
0.828
0.443
0.712
0.830
0.807
0.802
0.802
0.445
0.717
0.837
0.815
0.812
0.813
0.812
0.813
0.826
0.448
0.722
0.841
0.819
0.815
0.817
0.816
0.814
0.824
0.838
0.855
0.869

W
0.419
0.421
0.775
0.422
0.779
1.078
0.425
0.785
1.089
1.344
1.553
1.714
0.425
0.785
1.089
1.345
1.557
1.723
1.834
1.947
2.062
0.430
0.793
1.097
1.352
1.564
1.729
1.841
1.955
2.073
2.190
2.305
2.418

0.194
0.192
0.318
0.191
0.315
0.385
0.192
0.316
0.383
0.403
0.379
0.315
0.196
0.323
0.391
0.411
0.386
0.320
0.212
0.122
0.046
0.194
0.320
0.389
0.411
0.388
0.321
0.212
0.117
0.035
0.047
0.128
0.209

6 Months

Formation Period
3 Months

Source: Produced by the authors. Raw data has been collected from CMIE Database.

12 Months

9 Months

6 Months

3 Months

1 Month
2 Months

1 Month

Table 2. MCARS Generated by Various Trading Strategy in Banking Sector

Holding Period

M
0.613
0.613
1.093
0.613
1.094
1.463
0.617
1.101
1.472
1.747
1.932
2.029
0.621
1.108
1.480
1.756
1.943
2.043
2.046
2.069
2.108
0.624
1.113
1.486
1.763
1.952
2.050
2.053
2.072
2.108
2.143
2.177
2.209

W
0.554
0.556
1.058
0.556
1.060
1.522
0.560
1.067
1.531
1.952
2.330
2.669
0.563
1.072
1.539
1.962
2.342
2.681
2.977
3.234
3.455
0.566
1.078
1.549
1.975
2.356
2.699
2.997
3.256
3.477
3.653
3.837
4.027

0.203
0.201
0.342
0.202
0.341
0.435
0.203
0.342
0.435
0.490
0.509
0.501
0.204
0.344
0.437
0.491
0.509
0.498
0.462
0.397
0.297
0.205
0.346
0.437
0.490
0.508
0.496
0.459
0.391
0.288
0.137
0.005
0.143

9 Months
M
0.757
0.757
1.400
0.758
1.401
1.957
0.763
1.409
1.966
2.442
2.839
3.170
0.767
1.416
1.976
2.453
2.851
3.179
3.439
3.631
3.752
0.771
1.424
1.986
2.465
2.864
3.195
3.456
3.647
3.765
3.790
3.832
3.884

W
0.677
0.680
1.311
0.681
1.314
1.903
0.688
1.326
1.918
2.470
2.987
3.474
0.689
1.330
1.928
2.486
3.007
3.499
3.956
4.380
4.772
0.697
1.344
1.944
2.502
3.026
3.522
3.983
4.409
4.803
5.164
5.494
5.785

0.204
0.202
0.350
0.202
0.348
0.458
0.199
0.343
0.450
0.527
0.574
0.592
0.203
0.349
0.455
0.529
0.573
0.588
0.572
0.523
0.445
0.200
0.346
0.455
0.533
0.578
0.589
0.568
0.514
0.430
0.309
0.154
0.036

12 Months
M
0.881
0.882
1.661
0.883
1.662
2.361
0.887
1.669
2.368
2.997
3.561
4.066
0.892
1.679
2.383
3.015
3.580
4.087
4.528
4.903
5.217
0.897
1.690
2.399
3.035
3.604
4.111
4.551
4.923
5.233
5.473
5.648
5.749

Downloaded from gbr.sagepub.com by guest on July 6, 2016

0.147
0.147
0.161
0.147
0.161
0.176
0.147
0.160
0.175
0.193
0.205
0.223
0.147
0.160
0.175
0.194
0.206
0.223
0.246
0.258
0.276
0.147
0.160
0.175
0.193
0.206
0.224
0.247
0.260
0.279
0.296
0.315
0.331

0.113
0.113
0.105
0.113
0.104
0.093
0.112
0.103
0.092
0.086
0.071
0.058
0.113
0.104
0.093
0.086
0.071
0.058
0.045
0.029
0.013
0.114
0.105
0.094
0.087
0.071
0.057
0.044
0.028
0.012
0.001
0.018
0.034

1 Month
0.260
0.260
0.266
0.260
0.265
0.269
0.259
0.263
0.267
0.279
0.276
0.281
0.260
0.264
0.268
0.280
0.277
0.281
0.291
0.287
0.289
0.261
0.265
0.269
0.280
0.277
0.281
0.291
0.288
0.291
0.295
0.297
0.297

M
0.212
0.212
0.329
0.211
0.329
0.361
0.212
0.329
0.361
0.398
0.432
0.466
0.212
0.329
0.361
0.400
0.433
0.467
0.506
0.541
0.573
0.211
0.327
0.359
0.398
0.431
0.466
0.506
0.542
0.576
0.611
0.646
0.683

W
0.158
0.157
0.223
0.157
0.222
0.206
0.156
0.221
0.204
0.189
0.163
0.133
0.157
0.222
0.205
0.188
0.161
0.130
0.102
0.073
0.045
0.159
0.225
0.207
0.191
0.164
0.132
0.103
0.074
0.047
0.021
0.008
0.039

2 Months
0.370
0.369
0.552
0.368
0.551
0.567
0.368
0.550
0.565
0.587
0.595
0.599
0.369
0.551
0.566
0.588
0.594
0.597
0.608
0.614
0.618
0.370
0.552
0.566
0.589
0.595
0.598
0.609
0.616
0.623
0.632
0.638
0.644

M
0.268
0.268
0.464
0.268
0.463
0.585
0.268
0.463
0.584
0.637
0.689
0.746
0.268
0.464
0.587
0.642
0.695
0.753
0.807
0.865
0.920
0.267
0.461
0.583
0.638
0.692
0.750
0.804
0.862
0.919
0.975
1.032
1.087

W
0.186
0.185
0.296
0.185
0.296
0.334
0.183
0.292
0.329
0.299
0.265
0.224
0.185
0.294
0.329
0.297
0.261
0.217
0.171
0.123
0.080
0.187
0.298
0.335
0.303
0.266
0.221
0.172
0.123
0.080
0.038
0.001
0.040

L
0.454
0.453
0.760
0.453
0.759
0.919
0.451
0.755
0.913
0.936
0.954
0.970
0.453
0.758
0.916
0.939
0.956
0.970
0.978
0.988
1.000
0.454
0.759
0.918
0.941
0.958
0.971
0.976
0.985
0.999
1.013
1.031
1.047

M
0.415
0.415
0.781
0.414
0.781
1.097
0.415
0.782
1.099
1.369
1.590
1.761
0.414
0.781
1.099
1.371
1.594
1.768
1.890
2.010
2.129
0.412
0.778
1.095
1.366
1.588
1.760
1.881
2.001
2.119
2.232
2.340
2.447

W
0.247
0.246
0.437
0.245
0.434
0.571
0.244
0.431
0.564
0.643
0.668
0.647
0.247
0.436
0.569
0.646
0.668
0.643
0.567
0.486
0.406
0.248
0.440
0.575
0.655
0.677
0.651
0.573
0.489
0.407
0.320
0.235
0.148

6 Months

Formation Period
3 Months

Source: Produced by the authors. Raw data has been collected from CMIE Database.

12 Months

9 Months

6 Months

3 Months

1 Month
2 Months

Table 3. MCARS Generated by Various Trading Strategy in Pharma Sector

Holding Period

0.662
0.661
1.218
0.659
1.215
1.668
0.659
1.213
1.663
2.012
2.258
2.408
0.661
1.217
1.668
2.017
2.262
2.411
2.457
2.496
2.535
0.660
1.218
1.670
2.021
2.265
2.411
2.454
2.490
2.526
2.552
2.575
2.595

M
0.542
0.543
1.049
0.542
1.049
1.518
0.542
1.049
1.519
1.951
2.345
2.692
0.540
1.046
1.515
1.947
2.341
2.689
2.997
3.262
3.485
0.534
1.034
1.500
1.929
2.319
2.663
2.967
3.228
3.447
3.623
3.791
3.955

W
0.283
0.282
0.521
0.282
0.519
0.713
0.282
0.519
0.710
0.855
0.953
1.009
0.284
0.522
0.713
0.858
0.955
1.007
1.008
0.956
0.864
0.289
0.531
0.726
0.872
0.970
1.024
1.025
0.973
0.879
0.741
0.597
0.449

9 Months
0.825
0.825
1.570
0.824
1.568
2.231
0.824
1.568
2.229
2.806
3.298
3.701
0.824
1.568
2.228
2.805
3.296
3.696
4.005
4.218
4.349
0.823
1.565
2.226
2.801
3.289
3.687
3.992
4.201
4.326
4.364
4.388
4.404

M
0.665
0.665
1.300
0.664
1.299
1.902
0.662
1.295
1.897
2.468
3.000
3.499
0.655
1.282
1.880
2.448
2.978
3.476
3.938
4.357
4.737
0.652
1.275
1.867
2.428
2.952
3.444
3.903
4.321
4.700
5.046
5.355
5.627

0.304
0.303
0.567
0.304
0.567
0.789
0.303
0.565
0.788
0.963
1.093
1.182
0.309
0.576
0.799
0.975
1.104
1.193
1.239
1.239
1.195
0.313
0.583
0.812
0.993
1.127
1.218
1.264
1.265
1.222
1.139
1.015
0.852

12 Months
0.969
0.968
1.867
0.968
1.866
2.691
0.965
1.860
2.685
3.431
4.093
4.681
0.964
1.858
2.679
3.423
4.082
4.669
5.177
5.596
5.932
0.965
1.858
2.679
3.421
4.079
4.662
5.167
5.586
5.922
6.185
6.370
6.479

Downloaded from gbr.sagepub.com by guest on July 6, 2016

0.113
0.113
0.114
0.113
0.114
0.114
0.114
0.115
0.115
0.118
0.126
0.136
0.113
0.114
0.114
0.118
0.126
0.135
0.137
0.147
0.151
0.113
0.112
0.112
0.114
0.122
0.132
0.134
0.144
0.147
0.152
0.157
0.166

L
0.109
0.109
0.111
0.110
0.111
0.111
0.110
0.111
0.112
0.117
0.117
0.113
0.110
0.111
0.112
0.118
0.117
0.114
0.112
0.111
0.109
0.111
0.113
0.114
0.118
0.118
0.115
0.113
0.112
0.110
0.105
0.094
0.086

M
0.222
0.222
0.225
0.223
0.225
0.225
0.224
0.226
0.227
0.235
0.243
0.249
0.223
0.225
0.226
0.236
0.243
0.249
0.249
0.258
0.260
0.224
0.225
0.226
0.232
0.240
0.247
0.247
0.256
0.257
0.257
0.251
0.252

W
0.161
0.161
0.237
0.161
0.237
0.232
0.161
0.238
0.234
0.245
0.269
0.288
0.161
0.238
0.234
0.246
0.271
0.289
0.298
0.313
0.330
0.159
0.234
0.228
0.238
0.262
0.281
0.291
0.306
0.322
0.334
0.350
0.367

0.157
0.158
0.236
0.158
0.236
0.239
0.159
0.237
0.241
0.248
0.252
0.246
0.159
0.238
0.242
0.249
0.253
0.247
0.236
0.227
0.217
0.161
0.242
0.247
0.253
0.256
0.250
0.239
0.230
0.219
0.202
0.186
0.175

2 Months
M
0.318
0.319
0.473
0.319
0.473
0.471
0.320
0.475
0.475
0.493
0.521
0.534
0.320
0.476
0.476
0.495
0.524
0.536
0.534
0.540
0.547
0.320
0.476
0.475
0.491
0.518
0.531
0.530
0.536
0.541
0.536
0.536
0.542

W
0.195
0.195
0.323
0.195
0.323
0.392
0.196
0.325
0.395
0.416
0.451
0.483
0.195
0.323
0.393
0.415
0.450
0.482
0.504
0.524
0.542
0.192
0.317
0.384
0.403
0.437
0.468
0.491
0.510
0.528
0.549
0.570
0.594

L
0.194
0.194
0.324
0.195
0.324
0.392
0.195
0.325
0.394
0.398
0.400
0.388
0.196
0.327
0.396
0.399
0.401
0.389
0.374
0.354
0.333
0.199
0.332
0.401
0.404
0.404
0.392
0.378
0.358
0.336
0.311
0.288
0.270

M
0.389
0.389
0.647
0.390
0.647
0.784
0.391
0.650
0.789
0.814
0.851
0.871
0.391
0.650
0.789
0.814
0.851
0.871
0.878
0.878
0.875
0.391
0.649
0.785
0.807
0.841
0.860
0.869
0.868
0.864
0.860
0.858
0.864

W
0.289
0.289
0.534
0.290
0.535
0.742
0.289
0.535
0.742
0.916
1.057
1.159
0.285
0.527
0.731
0.903
1.043
1.144
1.198
1.254
1.302
0.282
0.520
0.721
0.890
1.027
1.126
1.179
1.234
1.281
1.320
1.357
1.396

0.270
0.270
0.491
0.271
0.492
0.664
0.272
0.495
0.668
0.795
0.874
0.902
0.275
0.499
0.675
0.803
0.881
0.909
0.887
0.854
0.813
0.277
0.504
0.681
0.811
0.891
0.919
0.897
0.862
0.820
0.766
0.703
0.636

6 Months

Formation Period
3 Months

Source: Produced by the authors. Raw data has been collected from CMIE Database.

12 Months

9 Months

6 Months

3 Months

1 Month
2 Months

1 Month

Table 4. MCARS Generated by Various Trading Strategy in Information Technology Sector

Holding Period

M
0.559
0.559
1.025
0.561
1.027
1.406
0.561
1.030
1.410
1.711
1.931
2.061
0.560
1.026
1.406
1.706
1.924
2.053
2.085
2.108
2.115
0.559
1.024
1.402
1.701
1.918
2.045
2.076
2.096
2.101
2.086
2.060
2.032

W
0.376
0.376
0.720
0.375
0.719
1.035
0.371
0.712
1.025
1.308
1.566
1.789
0.367
0.703
1.011
1.290
1.544
1.764
1.944
2.094
2.213
0.361
0.691
0.995
1.269
1.519
1.735
1.912
2.058
2.175
2.255
2.331
2.410

0.321
0.322
0.601
0.323
0.603
0.838
0.327
0.609
0.845
1.036
1.183
1.287
0.328
0.613
0.851
1.044
1.192
1.295
1.353
1.360
1.326
0.334
0.623
0.863
1.057
1.206
1.312
1.371
1.378
1.341
1.259
1.162
1.054

9 Months
M
0.697
0.698
1.321
0.698
1.322
1.873
0.698
1.321
1.870
2.344
2.749
3.076
0.695
1.316
1.862
2.334
2.736
3.059
3.297
3.454
3.539
0.695
1.314
1.858
2.326
2.725
3.047
3.283
3.436
3.516
3.514
3.493
3.464

W
0.454
0.453
0.882
0.451
0.879
1.282
0.447
0.871
1.269
1.649
2.009
2.344
0.439
0.857
1.252
1.628
1.985
2.315
2.616
2.890
3.135
0.432
0.842
1.229
1.596
1.945
2.268
2.563
2.831
3.069
3.284
3.475
3.642

0.356
0.358
0.672
0.358
0.674
0.953
0.360
0.678
0.960
1.205
1.402
1.554
0.366
0.689
0.973
1.220
1.418
1.572
1.679
1.742
1.760
0.372
0.700
0.990
1.242
1.443
1.597
1.702
1.763
1.781
1.757
1.686
1.579

12 Months
M
0.810
0.811
1.554
0.809
1.553
2.235
0.807
1.549
2.229
2.854
3.411
3.898
0.805
1.546
2.225
2.848
3.403
3.887
4.295
4.632
4.895
0.804
1.542
2.219
2.838
3.388
3.865
4.265
4.594
4.850
5.041
5.161
5.221

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0.204
0.204
0.211
0.204
0.212
0.218
0.205
0.214
0.221
0.237
0.246
0.260
0.207
0.216
0.224
0.240
0.250
0.266
0.278
0.288
0.299
0.207
0.217
0.226
0.244
0.255
0.271
0.284
0.295
0.309
0.321
0.333
0.345

0.170
0.169
0.165
0.168
0.163
0.154
0.167
0.160
0.149
0.148
0.141
0.137
0.165
0.155
0.144
0.142
0.132
0.126
0.118
0.111
0.105
0.165
0.156
0.143
0.139
0.128
0.122
0.113
0.104
0.096
0.086
0.077
0.066

1 Month
0.374
0.373
0.376
0.372
0.375
0.372
0.372
0.373
0.370
0.385
0.387
0.398
0.372
0.372
0.369
0.382
0.382
0.392
0.396
0.399
0.404
0.373
0.372
0.369
0.383
0.383
0.393
0.397
0.399
0.405
0.407
0.410
0.412

M
0.290
0.290
0.442
0.291
0.444
0.465
0.293
0.447
0.471
0.499
0.529
0.556
0.296
0.453
0.478
0.507
0.538
0.568
0.595
0.618
0.641
0.296
0.452
0.478
0.511
0.545
0.577
0.605
0.631
0.659
0.686
0.711
0.738

W
0.240
0.238
0.346
0.235
0.342
0.333
0.234
0.336
0.323
0.316
0.307
0.299
0.229
0.327
0.311
0.302
0.289
0.275
0.263
0.252
0.239
0.231
0.329
0.311
0.298
0.282
0.266
0.253
0.239
0.222
0.203
0.184
0.167

2 Months
0.529
0.528
0.788
0.527
0.785
0.798
0.526
0.783
0.793
0.815
0.836
0.855
0.525
0.780
0.789
0.809
0.826
0.843
0.858
0.870
0.880
0.526
0.781
0.789
0.809
0.827
0.843
0.858
0.869
0.881
0.889
0.895
0.905

M
0.357
0.358
0.607
0.360
0.609
0.750
0.362
0.614
0.758
0.801
0.845
0.890
0.366
0.621
0.769
0.814
0.860
0.907
0.950
0.988
1.027
0.365
0.620
0.769
0.817
0.868
0.919
0.964
1.006
1.049
1.092
1.136
1.174

W
0.288
0.285
0.468
0.282
0.462
0.549
0.279
0.455
0.534
0.521
0.510
0.503
0.273
0.443
0.517
0.500
0.484
0.470
0.458
0.446
0.431
0.275
0.445
0.518
0.497
0.476
0.458
0.443
0.427
0.407
0.383
0.363
0.344

3 Months

Source: Produced by the authors. Raw data has been collected from CMIE Database.

12 Months

9 Months

6 Months

3 Months

1 Month
2 Months

W
0.645
0.643
1.075
0.641
1.071
1.299
0.641
1.068
1.292
1.322
1.356
1.393
0.639
1.064
1.286
1.314
1.344
1.378
1.408
1.434
1.457
0.640
1.065
1.286
1.314
1.344
1.377
1.407
1.433
1.456
1.476
1.499
1.518

M
0.531
0.533
0.988
0.535
0.992
1.375
0.541
1.003
1.392
1.710
1.955
2.126
0.543
1.010
1.403
1.727
1.979
2.159
2.262
2.360
2.455
0.543
1.009
1.403
1.729
1.986
2.171
2.280
2.387
2.491
2.588
2.679
2.766

W
0.395
0.391
0.706
0.386
0.697
0.941
0.378
0.676
0.906
1.078
1.186
1.232
0.374
0.666
0.888
1.050
1.146
1.179
1.148
1.122
1.096
0.374
0.667
0.889
1.048
1.140
1.167
1.128
1.093
1.058
1.020
0.978
0.933

6 Months

Formation Period
M
0.927
0.925
1.694
0.922
1.689
2.316
0.918
1.679
2.299
2.788
3.141
3.359
0.917
1.676
2.291
2.777
3.125
3.338
3.409
3.481
3.551
0.918
1.676
2.292
2.777
3.125
3.338
3.408
3.480
3.549
3.608
3.657
3.699

Table 5. MCARS Generated by Various Trading Strategy in CNX 500 Stock Index (Indian Stock Market)

Holding Period

0.681
0.684
1.304
0.686
1.309
1.872
0.691
1.320
1.891
2.400
2.845
3.229
0.694
1.327
1.902
2.416
2.868
3.261
3.589
3.857
4.063
0.696
1.331
1.908
2.425
2.881
3.278
3.611
3.887
4.102
4.255
4.403
4.545

W
0.470
0.464
0.865
0.459
0.854
1.193
0.450
0.834
1.157
1.429
1.647
1.817
0.446
0.824
1.140
1.402
1.608
1.763
1.867
1.917
1.914
0.445
0.822
1.137
1.395
1.596
1.745
1.842
1.882
1.866
1.792
1.714
1.631

9 Months
1.151
1.148
2.170
1.145
2.163
3.065
1.141
2.154
3.048
3.829
4.493
5.046
1.140
2.151
3.042
3.818
4.476
5.023
5.456
5.774
5.978
1.141
2.152
3.044
3.820
4.477
5.023
5.453
5.769
5.968
6.046
6.117
6.176

M
0.817
0.819
1.584
0.822
1.589
2.303
0.827
1.600
2.322
2.992
3.608
4.168
0.832
1.611
2.338
3.013
3.634
4.202
4.714
5.170
5.572
0.833
1.612
2.342
3.023
3.650
4.223
4.741
5.204
5.614
5.971
6.277
6.533

0.521
0.516
0.978
0.510
0.967
1.372
0.501
0.946
1.336
1.677
1.965
2.203
0.495
0.932
1.313
1.644
1.919
2.142
2.313
2.435
2.510
0.496
0.934
1.315
1.641
1.909
2.123
2.286
2.397
2.460
2.474
2.441
2.363

12 Months
1.338
1.335
2.562
1.332
2.556
3.675
1.328
2.546
3.658
4.669
5.573
6.371
1.327
2.542
3.651
4.657
5.554
6.344
7.027
7.605
8.082
1.329
2.547
3.657
4.664
5.559
6.346
7.027
7.601
8.074
8.445
8.719
8.896

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Figure 1. MCAR of Winner and Loser Portfolios of Auto Sector Over the Testing Period for 12 12 Trading
Strategy
Source: Produced by the authors.

Figure 2. MCAR of Winner and Loser Protfolios of Banking Over the Testing Period for 12 12 Trading Strategy
Source: Produced by the authors.

compared to the different sectors. Amongst the four sectors, pharma sector yielded the maximum
momentum returns, followed by banking and auto sector, while IT sector showed the minimum momentum return and the same can be observed from Figure 6.

Concluding Remarks
In our article, we have examined the existence of a momentum effect in the Indian stock market
using four sectors of Indian economy covering the period from May 2000 to April 2013. The sample
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Global Business Review 16(3)

Figure 3. MACR of Winner and Loser Portfolios of Pharma Sector Over the Testing Period for 12 12 Trading
Strategy
Source: Produced by the authors.

Figure 4. M
 ACR of Winner and Loser Portfolios of IT Sector Over the Testing Period for 12 12 Trading Strategy
Source: Produced by the authors.

Figure 5. MACR of Winner and Loser Portfolios of CNX 500 over the Testing Period for 12 12 Trading Strategy
Source: Produced by the authors.

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Figure 6. Momentum Portfolio Profit in All Sectors and CNX 500 over the Testing Period for 12 12 Strategy
Source: Produced by the authors.

of the study included stock comprised by CNX 500 and large cap stocks of auto, banking, pharma and
IT sectors. The article adds some important findings to the existing literature, as there is little evidence
on this concept for emerging countries, particularly for India. Financial academicians and practitioners
have recognized that the average stock returns are related to past performance and cross-section of stock
returns is predictable on the basis of past returns. Our analysis also revealed the existence of momentum
effect in the Indian stock market and all sample sectors. Momentum effect is highly significant and has
comparatively become more significant with the increase in formation period and testing period that
supports the behavioural explanation given by the Daniel et al. (1998) and Hong and Stein (1999) that
momentum profit is a result of initial underreaction of the traders followed by subsequent overreaction.
It also could be interpreted by the analysis that the major source of momentum profit is return continuation,
where the price continuation in the winner portfolios for the entire formation period is higher than the
return reversal in the loser portfolios. Highest momentum profit has been seen in the pharma sector,
while lowest momentum return is given by IT sector. Sustained growth in pharma sector could be a
possible reason for generation of high-momentum profit (Liu et al., 2005). Auto and banking produced
more or less similar momentum profit. So, it advisable for investor to explore more in the pharma sector
to make additional return by following the momentum trading strategy.
The article also reviewed medium-term (monthly) and long-term (quarterly) trading strategies for the
four sectors and market index and found that long-term trading strategy is more profitable than monthly
trading strategy. Out of the 36 trading strategies, the most effective time period for superior profit was
the formation period of 12 months with holding period of 12 months. Even momentum return kept on
increasing with higher holding period, so investors are advised to follow buy and hold strategy in Indian
market. Consistent with the findings of Jegadeesh and Titman (1993, 2001), our article also found in the
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Global Business Review 16(3)

entire sample period that winner portfolio outperformed the loser portfolio. It could also be interpreted
by our analysis that a more diversified momentum portfolio can generate better returns rather than
industrial concentrated momentum portfolio.
Our findings could be relevant for institutional investors, QFIs, pension fund managers, banks and
HNI investors, who are looking for an investment strategy to beat the market and gain abnormal returns.
The article also has implications for evaluation the market efficiency. On the basis of the results, we
may conclude that there is a strong presence of momentum returns in the Indian stock market, which
produce evidence against the weak form of market efficiency. However, this article has not considered
the volume effect which can be considered; this gives the scope of the future research. Further, future
researchers could investigate the sensitivity of the results reported in this article to different trading
frequencies, such as daily and weekly frequencies and different portfolio-weighting schemes.
Acknowledgement
We appreciate the Referees critical and constructive comments on the manuscript that helps us to improve the
quality of the paper.

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