most successful zero-cost strategy selects stocks based on their returns over
the previous twelve months and then holds the portfolio for three months.
This strategy yields 1.31 percent per month when there is no time lag be-
tween the portfolio formation period and the holding period (see panel A).
The six-month formation period produces returns of about 1 percent per
month regardless of the holding period.
A. Evidence around the WorldMomentum strategies are profitable not only in the United States, but also
in many major markets throughout the world. For example, Rouwenhorst
(1998) replicates JT for 12 European countries and finds very similar re-
sults. Table 10.2 presents his findings. The six-month/six-month strategy
return is 1.16 percent per month with European stocks, compared with .95
percent for the U.S. market. Although Rouwenhorst’s sample period is
shorter than JT’s, his t-statistics are larger. Therefore, the volatility of mo-
mentum strategies is lower in Europe than in the United States.
A more recent study by Griffin, Ji, and Martin (2003) examines momen-
tum strategies in forty countries from around the world. This paper finds
that the momentum strategies are profitable in North America, Europe,
and Latin America, but they are not significantly profitable in Asia. An
earlier paper by Chui, Titman, and Wei (2000) also finds that the momen-
tum profits in Japan and the other Asian countries are not reliably greater
than zero.
B. SeasonalityMomentum strategies exhibit an interesting pattern of seasonality in Janu-
ary. Table 10.3 presents the returns for the six-month/six-month momentum
strategy within and outside January, which we reproduce from Jegadeesh
and Titman (2001). The basic strategy in this chapter is the same as that in
JT, although the samples are slightly different. Jegadeesh and Titman
(2001) cover the 1965 to 1998 sample period, and include Nasdaq stocks
while JT consider only NYSE and AMEX listed stocks. However, Jegadeesh
and Titman (2001) exclude stocks with low liquidity by screening out
stocks priced less than $5 and stocks in the smallest market cap decile,
based on NYSE size decile cut off.
The momentum strategy loses in January, but earns positive returns in
every calendar month outside of January. The January return is −1.55 per-
cent and the non-January return is 1.48 percent per month.^2 Earlier studies
358 JEGADEESH AND TITMAN
(^2) JT report that the momentum strategy earns −6.86 percent in January. The negative re-
turn in Jegadeesh and Titman (2001) is smaller because they exclude the smallest firms, which
account for much of the January return reversals.