||This study mainly investgates the investment performance of momentum strategies and contrarian strategies in Taiwan stock market. There are three purposes in this paper. First, we examine whether the momentum strategies and contrarian strategies can create significant profits under different formulation horizons and holding horizons, then we discuss the reasons for the profits of significant profits strategies, including risk, seasonality, industrial momentum, time series predictability of stock returns and cross-sectional variation in the mean returns, and stock underreation, overreaction, and random walk. Second, we derive the mix strategies from the combination of momentum strategies and contrarian strategies for the same holding horizons and test the investment performance of mix strategies empirically. Finally, we study whether the investment strategies of stock mutual funds in Taiwan are industrial momentum strategies or industrial contrarian strategies, and which strategies can create better industrial investment performance. |
The main conclusions and suggestions are as follows:
First, we find the momentum strategies are more successful in Taiwan as a whole, especially from 1991/1/1 to 2000/12/31. There are only three significant profits strategies in 147 strategies totally for three different test periods, including the (24,24) strategy and (36,24) strategy from 1991/1/1 to 2000/12/31, and (1,12) strategy from 1981/1/1 to 1990/12/31. For the reasons of the profits of the three strategies, we find the negative alphas in the F&F three factors model and underreation from the decreasing returns in the post holding horizons, so we should use the momentum strategies very carefully in Taiwan stock market.
Second, we find the success of mix strategies theoretically and empirically. Nevertheless, we can’t increase the profits for considering more different sub-strategies if there are no successful sub-strategies with different formulation horizons.
Finally, we find the investment strategies of stock mutual funds almost are industrial momentum strategies, which realized significantly better industrial performance then the industrial contrarian strategies. It suggests that the industrial momentum strategies are not irrational and can increase the speed of adjustment of industrial index to its intrinsic value. On the other hand, stock mutual funds can perform well by the momentum strategies without superior information collection and analysis.