Exclude Japan from Momentum Portfolios?
March 16, 2011 - Momentum Investing
Does momentum not work for Japanese equities? In his March 2011 paper entitled “Momentum in Japan: The Exception that Proves the Rule”, Clifford Asness examines whether the failure of stock price momentum in Japan materially undermines belief in momentum investing. He argues that any such examination should adopt the context of value and momentum as an integrated system. His methodology is to rank stocks representing the top 90% of capitalization within each of the U.S., UK, Europe (excluding UK) and Japan into three equal groups by value (book-to-market ratio, with book value lagged six months) or momentum (12-month past return, skipping the most recent month). The spreads in value-weighted returns between the top and bottom thirds define the value and momentum premiums within each geographic market. Using monthly returns for the selected stocks over the period July 1981 through December 2010 (29.5 years), he finds that: Keep Reading