Long-Term Profitability of Volume-Based Price Momentum in Taiwan

Abstract

In the Taiwanese stock market, this paper discovers a significant outperformance of volume-based price momentum strategies relative to pure price momentum strategies over the holding period of 3–5 years. Specifically, hedge portfolios that are longing low-volume winners and shorting high-volume losers generate superior returns than pure price hedge portfolios of buying winners and selling losers. Moreover, the opposed strategies of buying high-volume winners and selling low-volume losers systematically underperform the pure price momentum strategies. Both results are consistent with those from US. More importantly, both outperformance and underperformance are robust to adjustment of industry effects, book-to-market ratio, and firm size. Furthermore, firm size seems to subsume a larger portion of superior and inferior performances than the other two control factors because the economic magnitude of outperformance and underperformance deteriorates more intensively when it is conditional on firm size than on the other two factors.