Momentum and Reversal Puzzle in Emerging Markets

Abstract

Empirical research about the existence of momentum in Emerging Stock Markets shows that profits are in general positive but not always economically and statistically significant. This paper re-examines the momentum phenomenon in 15 emerging markets, using data from 1995 to 2005. Our results are strongly different from previous literature: we found no evidence of momentum and a significant evidence of reversals in most of the markets analysed, even when controlled for systematic risk and size. This is probably due to a faster diffusion and a huge amount of information available in recent years, which are leading to overconfidence and overreaction.

Keywords: Emerging Markets, Reversal, Momentum

JEL Classification: G14, G15