The Style Momentum and Its Origin

Capital market investors have always sought to identify anomalies market and plan profitable trading strategies based on them. Momentum is one the most famous anomalies market. Momentum initially identified by Jagadeesh and Titman (1993) at the level of individual stocks, and recently has been examined at the level of style portfolios. The purpose of this study is to test the profitability of the style momentum strategy based on the size and book value to market value ratio style and its origin through decomposing the profit of strategy in Tehran Stock Exchange.

To examine the profitability of style momentum used portfolio study method for 3, 6 and 12 ranking and holding period strategies. In this study the profitability of style momentum was attributed to risk factor, return continuation and excessive co-movement that unexplained the macroeconomic factors.

The results show that the style momentum strategy profitability is almost positive and significant for the short-terms and mid-terms periods, but for the long-terms period despite the positive profitability it has not been statically significant or become a reversal strategy. The results show that for 3 and 6 month strategies, the main benefits of style momentum are explained by return continuation theory and for 12 month strategy risk identified as a major component of style momentum.

For 3 and 6 month strategies "risk" and "return continuation theory" are the main components of style momentum, but for the 12 month strategy "risk" is introduced as the sole cause of style momentum.