International Journal of Nonlinear Analysis and Applications

The dominance of the contractum over the momentum and vice versa: Evidence from the Iranian capital market

Document Type : Research Paper

Authors

Department of Accounting, Bonab Branch, Islamic Azad University, Bonab, Iran

Abstract

This study is aimed at investigating the possibility of combining the ranking period and maintenance period of classical momentum and reverse strategies and evaluating the performance of portfolios resulting from hybrid strategies in comparison with classical strategies. For this purpose, using the information of 120 companies listed on the Tehran Stock Exchange in the period 2011 to 2019, the amount of excess return, the explanatory power of excess return by risk factors of the seven-factor model Fama and French and the explanatory power of future return by excess return of each strategy Combined and classical are evaluated and compared. The results show that contraratum (contractionary hybrid strategy), which is ranked as long-term as reverse strategies but maintained in the medium term like momentum strategies, performs better than momentum and reverse strategies. By controlling risk factors (Fama and French seven-factor model), contractionary, reverse and momentum investment strategies in the Iranian capital market are profitable. Finally, the results of the present study support the explanatory power and more predictive power of the excess yield of the contractionary strategy than the classical strategies for future returns. Therefore, the contribution of the present study is to provide evidence of the excess return and performance of the new hybrid strategy are much higher than the classic investment strategies proven in the Iranian capital market.

Keywords

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International Journal of Nonlinear Analysis and Applications
Volume 14, Issue 6
June 2023
Pages 85-97
  • Receive Date: 01 June 2022
  • Revise Date: 21 July 2022
  • Accept Date: 09 September 2022