Market states and momentum in sector exchange-traded funds

Ding Du, Karen Craft Denning, Xiaobing Zhao

Research output: Contribution to journalArticle

Abstract

We provide a clean out-of-sample test of momentum effects by focusing on a new sample period and a new set of test assets. More specifically, we examine market states and momentum in sector exchange-traded funds (ETFs) in the post-2000 period. Our results suggest that there is no momentum in sector ETFs, and that momentum does not depend on market states in the recent decade. Our findings have important theoretical as well as practical implications. In terms of theoretical implications, models attempting to explain momentum now have a higher hurdle to meet in that these models need to explain why momentum does not seem to exist in the recent decade. In terms of practical implications, our findings suggest that in capital budgeting, portfolio evaluation, investment and risk analysis decisions, caution should be exercised in using the models that take into account momentum effects.

Original languageEnglish (US)
Pages (from-to)223-237
Number of pages15
JournalJournal of Asset Management
Volume15
Issue number4
DOIs
StatePublished - Aug 11 2014

Keywords

  • exchange-traded funds
  • market states
  • momentum

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management
  • Information Systems and Management

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