Testing Momentum and Contrarian Strategies In The Malaysia Stock Exchange

Tafdil, Husni and Ahmad, Zamri (2010) Testing Momentum and Contrarian Strategies In The Malaysia Stock Exchange. Australian Finance and Banking Proceeding.

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Abstract

The study investigates whether or not the profitability of momentum and contrarian strategies work in the Malaysian stock exchange (formerly Kuala Lumpur Stock Exchange / KLSE). By using daily data for the period 1988 through 2002 and following the strategy quite similar to Jegadeesh and Titman (1993), we find that only one strategy, 3-month ranking, 3-month testing period, has statistically significant abnormal returns for momentum strategies. If we construct shorter ranking and test periods, we found that the momentum payoff still work for 2-month ranking and 2 month testing strategy. Whereas, the contrarian strategy appears to work for 1-month ranking, 1-month testing period. Both results are statistically significant at 5% level. The study also reveals that the profitability of momentum and contrarian strategies still exist after the inclusion of transaction cost. These findings are in line with prior studies, which found that the profitability of momentum is achievable in medium term, whereas contrarian strategy works in short term.

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