Theory in Practice: A Study of Momentum Definitions and Market State on Momentum Returns in the South African Market

Abstract

In comparing momentum returns in bearish and bullish periods and looking closer into the impact of momentum definition on these returns on the Johannesburg Stock Exchange Africa All Share Index (JALSH), this study suggests that the momentum strategy is a profitable one in the South African market with statistical significance. In looking at rebalancing, portfolios with annual rebalancing yield higher returns, with average returns increasing as rebalancing time spans increase. In addition, when we define momentum in such a way where we rank stocks based on their median returns over a previous J months, we find the highest momentum returns on average. Given that outliers are removed from the original dataset to make our data resemble the normal distribution, the study does not consider extreme or unusual market conditions.