Momentum in Australian Stock Returns: An Update

A feature of this update is that the HP sample has been extended so that the
stock returns now cover the period from December 1973 to December 2004.
We also allow for a much larger universe of securities. The portfolios
considered in this paper include all securities listed on the ASX provided that
they satisfy two simple liquidity criteria, the exact nature of which will be
made clear later in the description of the momentum portfolio composition.
The number of stocks that pass the liquidity criteria in any given month
ranges between 600 and 900, substantially larger number of securities than the
top 200 considered in HP.

Table 1 Mean monthly returns (%) by Size (size is defined according to the relative
ranking based on the price of the last observed trade).

As a baseline for comparative purposes, Table 1 reports the mean returns over
sample for stocks in different size cohorts. The most notable feature of these
figures is presence of a size effect for stocks in the 700-900 ranking. It is also
interesting to note that there is evidence of a small U-shape in the average
performance by size cohorts. Despite these observations, however, on grounds
of these average performance figures, there appears to be no compelling reason
to limit the momentum analysis to the top 200 stocks.

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