Momentum Strategy and Bombay Stock Exchange

Abstract

Short term momentum effect claims that recent past winners tend to outperform the market whereas recent past losers tend to underperforms the market. Therefore by definition it challenges the efficient market hypothesis, which is of the view that future returns cannot be predicted by using past returns. This study examines whether short term momentum effect challenges the efficient market hypothesis or not. Momentum effect has been found in almost all the stock exchanges in the world and documented in the financial literature by many well-known scholars. For this purpose, Bombay Stock Exchange (BSE) has been chosen and stock prices of BSE 100 index have been downloaded for the period starting from 24 June, 2006 and ending on 24 June, 2011 to perform momentum calculations. BSE has been selected because of its rapidly growing nature. Many leading articles have mentioned Bombay Stock Exchange as one of the fastest emerging capital stock market in the world.

Keywords: Short term momentum effect, momentum strategies

JEL Classification: G15