Can Momentum Portfolios Earn More in the Karachi Stock Exchange?

Syed Hamid Ali Shah, Attaullah Shah


In this study, we attempt to show empirical evidence of momentum profits in Karachi Stock Exchange (KSE) using monthly stocks returns data of 609 stocks over the period June 2004 to March 2014. Using Jegadeesh and Titman (1993) methodology, we find that investors can earn positive returns by holding a zero-investment momentum portfolio i.e. buying past winners stocks and selling past losers stocks. These results are robust to excluding small stocks (share price< PKR 5) as well as to using different sample periods. Further research in this area might consider factors such as risk, size, liquidity, book-to-market value, transaction costs, and trading volume to see which of these factors can explain momentum profits in KSE.


Momentum Returns; Pakistan; Winners and Losers; Mean Reversion

Full Text:



Andy, C. W., Titman, S., and John Wei, K. C. (2000). “Momentum,

Legal Systems and Ownership Structure: An Analysis of Asian

Stock Market”, Working paper, University of Texas.

Barberis, N., Shleifer, A., and Vishny, R. A. (1998) . “model of investor

sentiment”, Journal of Financial Economics, 49, pp. 307–343.

Bekaert, G. Erb, C. Harvey, C. and Viskanta, T. (1997) . “What matters

for emerging equity market investments”, Emerging markets

quarterly, summer, pp.17-46.

Bildik, R. and Guzhan Gulay, G. (2002) . “The Winners and Losers

Effect: Evidence from the Istanbul Stock Exchange”, EFMA 2002

London Meeting.

Bonomo, Marco and Ivana Dall’Agnol, (2003) . “Retornos Anormais e

Estratégias Contrárias”, Revista Brasileira de Finanças, 1, pp.


Boudoukh, J., Richardson, M. and Whitelaw, R. (1994) . “A tale of

three schools: Insights on autocorrelations of short-horizon stock

returns”, Review of Financial Studies, 7, pp.539-573.

Chan, Louis K.C, Jegadeesh, N. and Lakonishok, J. (1996) . “Momentum

strategies”, Journal of Finance, 51, pp.1681-1713.

Chang, R., McLeavey, D., and Rhee, S. (1995) . “Short-term abnormal

returns of the contrarian strategy in the Japanese Stock Market”,

Journal of Business Finance Account. 22 (7), pp.1035–1048.

Chui, Andy C. W., Titman, S. and John Wei, K. C. (2003) . “Momentum,

Legal Systems and Ownership Structure: An Analysis of Asian

Stock Market”, Working paper, University of Texas.

Daniel, K. D., Hirshleifer, D., and Subrahmanyam, A. (1998) . “Investor

psychology and security market under and over-reactions”,

Journal of Finance, 53, pp. 1839-1886.

Daniel, K. D., Hirshleifer, D., and Subrahmanyam, A. (2001) .

“Overconfidence, arbitrage and equilibrium asset pricing”,

Journal of Finance, 56, pp. 921–65.

DeBondt, W. and Thaler, R. (1985) . “Does the stock market overreact?”,

Journal of Finance, 40, 793–805.

DeBondt, W. and Thaler, R. (1987) . “Further evidence on investor

overreaction and stock market Seasonality”, Journal of Finance,

, 557–581.

Fama, E. F. (1970) . “Efficient capital markets: A review of theory and

empirical work”, Journal of Finance, 25: 383–417.

Fama, E. F., and Blume, M. (1966) . “Filter Rules and Stock Market

Trading Profits”, Journal of Business (Special Supplement),

pp. 226-241.

Fama, E. F., and French, K. R. (1988) . “Permanent and temporary

components of stock prices”, Journal of Political Economy,


Fama, E. F., and French, K. R. (1998) . “Business Conditions and

Expected Returns on Stocks and Bonds”, Journal of Financial

Economics, 25, pp. 23-50.

Fama, E. F., Fisher, L., Jensen, M. C., and Roll, R. (1969) . “The

Adjustment of Stock Prices to New Information”, International

Economic Review, pp. 1-21.

Fama, E.F., and French, K. R. (1992) . “The cross-section of expected

stock returns, Journal of Finance

Fluck, Z. Malkiel, B. G., and Quandt, R. E. (1997) . “The predictability

of stock returns: A cross-sectional simulation”, Review of

Economics and Statistics, 79: 176–83.

Griffin, Ji, and Martin (2003) . “For a study of momentum around the

world Market states and momentum, Journal of Finance,

Gutierrez, R. C., and Kelley, E. K. (2006) . “Evidence to the contrary:

weekly returns have momentum”, Working Paper, University of


Hart, J. V. Slagter, E. and Dijk, D.V. (2002) . “Stock selection strategies

in emerging markets”, Journal of Empirical Finance, pp. 194-

Hong, H., and Stein, J. C. (1999). “A unified theory of underreaction,

momentum trading and overreaction in asset markets”, Journal

of Finance, 54, pp. 2143–2184.

Hong, H., Kubik, J., and Stein, J. C. (2005). “Thy neighbor’s portfolio:

Word-of-mouth effects in the holdings and trades of money

managers”, Journal of Finance, 60, pp. 2801–24.

Jegadeesh, N. (1990). “Evidence of predictable behavior of security

returns”, Journal of Finance, 45, pp. 881–98.

Jegadeesh, N. and Titman, S. (1993) . “Returns to buying winners and

selling losers: Implications for stock market efficiency”, Journal

of Finance, 48, pp.65–91.

Jegadeesh, N. and Titman, S. (2001). “Profitability of momentum

strategies: An evaluation of alternative explanations”, Journal

of Finance. 56, 699-720.

Jegadeesh, N., and Titman, S. (1994). “Overreaction, delayed reaction,

and contrarian profits”, University of Illinois at Urbana

Champaign, Working paper.

Jegadeesh, N., and Titman, S. (1995). “Overreaction, delayed reaction,

and contrarian profits”, Review of Financial Studies, 8, 973–

Jensen, M. C. (1986) . “The Performance of Mutual Funds in the Period

-1964”, Journal of Finance, pp. 389-416.

Jensen, M. C., and Bennington, G. A. (1970) . “Random Walks and

Technical Theories: Some Additional Evidence”, Journal of

Finance, pp. 469-482.

Lakonishok, J., Shleifer, R. and Vishny, R. (1994) . “Contrarian

investment, extrapolation, and risk”, Journal of Finance, 49,


Lehmann, B. N. (1990). “Fads, martingales and market efficiency”,

Quarterly Journal of Economics, 105, pp. 1–28.

Liu, C. and Lee, Y. (2001). “Does the Momentum Strategy Work

Universally? Evidence from the Japanese Stock Market”, Journal

of Asia-Pacific Financial Markets, 8, pp. 321-339.

Lo, A. W., and MacKinlay, A. C. (1990) . “When are contrarian profits

due to stock market-overreaction?”, Review of Financial Studies,

, 175–208.

Lo, A. W., and MacKinlay, A. C. (1999) . “A Non-random Walk Down

Wall Stree”, Princeton University Press, Princeton, NJ.

Malkiel, G. B. (2008). “Stock Market Predictability”, International

Encyclopedia of the social and Behavioral Sciences, pp. 15126-

Mandelbrot, B. (1966). “Forecasts of Future Prices, Unbiased Markets,

and Martingale Models.” Journal of Business (Special

Supplement), pp. 242-255.

McQueen, G., Pinegar, M., and Thorley, S. (1996) . “Delayed Reaction

to Good News and the Cross-Autocorrelation of Portfolio

Returns”, The Journal of Finance, Vol. 51(3), Papers and

Proceedings of the Fifty-Sixth Annual Meeting of the American

Finance Association, San Francisco, California, January 5-7, 1996,

pp. 889-919.

Naranjo, A. and Porter, B. (2007) . “Including emerging markets in

international momentum investment strategies”, Emerging

Markets Review, 8, pp. 147-166.

Owen, J. (1986). “Analysis of Variance Tests for Local Trends in the

Standard and Pdofs Index” Journal of Finance, pp. 509-514.

Poterba, J. M., and Summers, L. H. (1988). “Meanreversion in stock

returns: Evidence and implications”, Journal of Financial

Economics, 22: 27–59.

Rouwenhorst, K. (1998) . “International momentum strategies”,

Journal of Finance, 53, 267–284.

Samuelson, P. A. (1965) . “Proof That Properly Anticipated Prices

Fluctuate Randomly”, Industrial Management Review, 6, pp.


Shah, Attaullah (2014). “Stata Program for Momentum J-K Portfolios”,

Working Paper.

Shiller, R. J. (1984). “Stock prices and social dynamics”, Brookings

Papers on Economic, 457–510.

Young, W. E. (1971). “Random Walk of Stock Prices: A Test of the

Variance-Time Function”, Econometrica, pp. 797-812.

Zarowin, P. (1990). “Size, seasonality, and stock market overreaction”,

Journal of Financial and Quantitative Analysis, 25, pp. 113_/



  • There are currently no refbacks.

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.