Momentum under different market climates: Evidence from the South African market

Sammanfattning: In this study, we examine the existence and persistence of return momentum in the South African market between March 1995 and December 2009. We investigate three different momentum strategies, and examine their risk-return relationship under different market climates. We mainly use a one-factor market model to identify possible differences in systematic risk exposure conditional on the market climate. We find momentum to be positive and economically significant in the South African market. The best strategy, based on the previous 12 months returns and held for 3 months, generate an average annual return of 29.84 percent, however trading costs diminishes the profits. While there seems to be a relationship between negative market climate and increased correlation between momentum returns and the market factor, our results only give weak evidence for that the market climate has impact on the magnitude of momentum returns.