Survivorship bias and alternative explanations of momentum effect

Julia Henker, Thomas Henker, Thanh Duc Huynh

Research output: Chapter in Book/Report/Conference proceedingConference contributionResearchpeer-review

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Abstract

This paper provides the first detailed examination of momentum effect in Australian equity market. In contrast to previous research, we find that momentum effect has not been present in Australian market since late 1970s. We argue that previous research found strong momentum effect because they assumed perfect foresight of future delisting or acquisitions in the sampling process. In addition, we find that Fama and French three-factor model cannot explain the mean momentum returns although it can fully rationalize the returns on winners and losers portfolios. Our findings raise awareness in the literature that momentum effect is not robust to different sampling methods. We contribute an alternative explanation to momentum returns documented in existing literature. Momentum effect could be a product of look-ahead bias incurring from the sampling techniques. More importantly, we provide supports to the efficient market hypothesis at weak form.
Original languageEnglish
Title of host publicationProceedings of the 2011 FMA Annual Meeting
EditorsJ Kose
Place of PublicationFlorida, USA
PublisherFinancial Management Association
Pages1-43
Number of pages43
Publication statusPublished - 2011
EventFinancial Management Association 2011 Annual Meeting - Denver, Colorado, United States
Duration: 20 Oct 201122 Oct 2011
http://www.fma.org/

Conference

ConferenceFinancial Management Association 2011 Annual Meeting
CountryUnited States
CityColorado
Period20/10/1122/10/11
Internet address

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Momentum effect
Survivorship bias
Sampling
Momentum
Equity markets
Delisting
Sampling methods
Fama-French three-factor model
Efficient market hypothesis
Perfect foresight

Cite this

Henker, J., Henker, T., & Huynh, T. D. (2011). Survivorship bias and alternative explanations of momentum effect. In J. Kose (Ed.), Proceedings of the 2011 FMA Annual Meeting (pp. 1-43). Florida, USA: Financial Management Association .
Henker, Julia ; Henker, Thomas ; Huynh, Thanh Duc. / Survivorship bias and alternative explanations of momentum effect. Proceedings of the 2011 FMA Annual Meeting. editor / J Kose. Florida, USA : Financial Management Association , 2011. pp. 1-43
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Henker, J, Henker, T & Huynh, TD 2011, Survivorship bias and alternative explanations of momentum effect. in J Kose (ed.), Proceedings of the 2011 FMA Annual Meeting. Financial Management Association , Florida, USA, pp. 1-43, Financial Management Association 2011 Annual Meeting, Colorado, United States, 20/10/11.

Survivorship bias and alternative explanations of momentum effect. / Henker, Julia; Henker, Thomas; Huynh, Thanh Duc.

Proceedings of the 2011 FMA Annual Meeting. ed. / J Kose. Florida, USA : Financial Management Association , 2011. p. 1-43.

Research output: Chapter in Book/Report/Conference proceedingConference contributionResearchpeer-review

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AB - This paper provides the first detailed examination of momentum effect in Australian equity market. In contrast to previous research, we find that momentum effect has not been present in Australian market since late 1970s. We argue that previous research found strong momentum effect because they assumed perfect foresight of future delisting or acquisitions in the sampling process. In addition, we find that Fama and French three-factor model cannot explain the mean momentum returns although it can fully rationalize the returns on winners and losers portfolios. Our findings raise awareness in the literature that momentum effect is not robust to different sampling methods. We contribute an alternative explanation to momentum returns documented in existing literature. Momentum effect could be a product of look-ahead bias incurring from the sampling techniques. More importantly, we provide supports to the efficient market hypothesis at weak form.

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Henker J, Henker T, Huynh TD. Survivorship bias and alternative explanations of momentum effect. In Kose J, editor, Proceedings of the 2011 FMA Annual Meeting. Florida, USA: Financial Management Association . 2011. p. 1-43