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Investor Sentiment and Momentum Profitability: A Case of Pakistan

Author

Listed:
  • RAHMAN, SALEH

    (Institute of Management Sciences, Peshawar, Pakistan)

  • SHAH, ATTAULLAH

    (Institute of Management Sciences, Peshawar, Pakistan)

Abstract

This study measures profitability of momentum strategies in Pakistan Stock Exchange. Further, this study compares the profitability of two price momentum strategies i.e. Jegadeesh and Titman’s winner-loser momentum strategy and Georg and Hwang 52-week high momentum strategy. Also, the study investigates the relationship momentum strategies and investor sentiment. Monthly stock prices data of all listed companies is used over the period of January 2002 to December 2015. The analysis showed that Hwang and George, 52-week high momentum strategy have higher returns as compared to Jegadeesh and Titman, momentum strategy. Further, the results showed that the investor sentiment can explain variations in momentum time-varying patterns because the 52-WH has a positive and significant relationship with investor sentiment. Momentum strategy provides a positive significant return in periods of investor optimism while the return decreases in periods of investor pessimism. The current study supports the hypothesis of the George and Hwang, that the investor’s decisions are affected by behavioral biases. Results further indicate that using investor’s sentiment; an investor can easily predict variation in stock prices occurred in the basis of changes in monetary policy, legislation, business cycles and market status.

Suggested Citation

  • Rahman, Saleh & Shah, Attaullah, 2017. "Investor Sentiment and Momentum Profitability: A Case of Pakistan," Journal of Internet Banking and Commerce, , vol. 22(03), pages 01-19, December.
    • Handle: RePEc:ris:joibac:0134
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    More about this item

    Keywords

    Momentum Strategy; 52-Week High Momentum; Investor Sentiment; Business Cycles; Financial Factors;
    All these keywords.

    JEL classification:

    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists

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