Market Volatility and Momentum: Evidence from Pakistani Stock Exchange
DOI:
https://doi.org/10.30537/sijmb.v4i1.105Keywords:
Market volatility, Momentum, Time-series predictability of momentum.Abstract
This study explores the relationship between market volatility and momentum profitability. This study indicates that market state volatility has significant power to forecast momentum payoffs, especially in negative market states. The results are the context in the presence of market state and business cycle variables. Market premium is significant and negative. Market volatility is also found negatively influencing momentum profits. Volatility is divided into volatility in the positive market and volatility in the negative market. Both are significantly and negatively influencing momentum profits. Vol+ and Vol- both have negative signs; Vol- is dominant in terms of the magnitudes of the coefficient and the t-statistics. Business cycle effect measured by term and yield is not found significant. Non-linearity has not been observed regarding the term. Results are found robust for market adjusted momentum payoff. The study also explores the impact of market state, volatility and business cycles on the return of loser and winner portfolio. This study reports that returns of the loser portfolios are explained by market component, whereas volatility is found to be insignificant. The macroeconomic variables TERM, TERM2 and YLD show signs of statistical significance. Market factor is significantly and positively influencing winner portfolios. The results indicate that volatile markets forecast low returns on winner stocks. Return dispersion used to measures cross-sectional is also found significant. The study recommends that investors should devise investment and momentum strategies on the basis of the volatility of stocks and the business cycle. The tests of this study show that volatile down markets forecast low momentum payoffs. The time-series predictability of momentum is asymmetric, which arises from loser stocks.
Downloads
Downloads
Published
Issue
Section
License
The SIJMB holds the rights of all the published papers. Authors are required to transfer copyrights to journal to make sure that the paper is solely published in SIJMB, however, authors and readers can freely read, download, copy, distribute, print, search, or link to the full texts of its articles and to use them for any other lawful purpose.
The SIJMB is licensed under Creative Commons Attribution-NonCommercial 4.0 International License.