Industry Momentum: Its Existence And Correlation With Market Performance

Large number of papers documented that buying past winning stocks and sellingpast losing stocks can generate significantly positive return over3-month to12-monthportfolio formation and holding periods, which is noted as individual stocksmomentum phenomenon. This paper documents that there is also strong industrymomentum effect that long industries that performed well in the past and shortindustries that performed poor in the past can also generate significantly positivereturn. Industry momentum phenomenon does not only exist in the US market butalso exist in the Chinese stock market. What’s more, this paper also investigates intothe relationship between industry momentum return and market performance andshows that industry momentum return is highly affected by market performance.Industry momentum return is stronger when market performs well and weaker whenmarket performance is poor. While seldom papers have documented industrymomentum phenomenon in Chinese stock market, this paper proves that there isindustry momentum effect in Chinese market and industry momentum returns aresignificantly positive for some trading strategies. This paper also shows that industrymomentum trading profits are positively related with market performance in Chinesestock market.