Weaknesses and Strengths International Momentums Strategies

INTERNATIONAL MOMENTUMS STRATEGIES
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International Momentums Strategies
Previous studies provide evidence on the connection between past and present performances concerning stock returns (Groot, 2012). However, it is unclear on the reason for the occurrence of the connection and the probable nature of the relationship. Studies indicate that there is no correlation between the return continuation and the fundamental factors that include risks (KOSOWSKI, 2013). The absence of return continuation in the foreign markets and ties to risks in cases where they exist brings about anomalous data which may, in turn, be unexplainable. Also, companies that possess poor performances for periods of up to five years have been seen to have higher returns as compared to those that showed excellent performance in the past (Menkhof, 2010). The US stocks database has enhanced the discovery of returns and continuation patterns, thereby informing decision making (Gerstein Fisher , 2016). The future oriented momentum strategies indicate low correlations with other existing future strategies contrary to the fact that they have relatively low returns, providing additional diversification returns (Hong, 2003). The paper analyses the journal article critically to ascertain its effectiveness in informing the audience about the stated topic.
Theoretical Relevance of the Journal
The theme of the journal article clearly connects to the content of the article. The process of purchasing stocks with higher paybacks defines momentum; with the process generating abnormal excessive profits considerably challenging the shattered market efficiency (Grinblatt, 2003). Past winners who are losers eventually become losers who are winners after investing in a periodic scheme, running between three to five years (Kristensen, 2016). Long term reversals have been found to be more consistent with the multiple factors return models, with their model failing to elaborate on the medium-term continuation of performance. However, the journal article shallowly explains on the theoretical aspect of the subject and in turn capitalizes on the findings and data analysis. The studies do not clearly inform the audience of the existing controversy of why the networks exist (Menkhof, 2010). Apart from the future earnings, previous research undertaken still indicates that low volume businesses earn higher future returns and vice versa (Koesterich, 2015).
Two different explanations do exist for a reason as to why the value plans do work and are a representation of risk versus the inefficiency of the market (Vogel, 2015). The value strategies have been noted to work exceptionally well by capitalizing on the failure by investors to correctly price securities (Chen, 2009). An analysis of the premiums of the upcoming and established markets indicates that unless an individual firmly believes on the negative side, the quantitative evidence favors the theory that the returns all over the globe compensate the momentum, value and size strategies (Aalto University, 2012). Momentum strategies aid in exploiting the available stock prices by purchasing the hot stocks and selling out the cold shares. Various debates established that some reasons result in momentum profits; with the gradual reaction of stock prices to announcements being the main reason (Macedo, 2001).
Going by the stand of the article; if the previous prices are the core indicators of the future performance of stocks, then the traditional finance theory that is centered at market efficiencies will be violated (Hong, 2003). Efficient markets are those whose price securities are accurate and at the instance reflect all the expected data. In any investment plan, the main reason is to receive better returns as compared to the risks taken (Aalto University, 2012). The survey is thereby essential in informing decision making by investors after examining several portfolio indices (Nagy, 2014). International companies provide independent evidences on the profitability of momentum strategies which is true as expressed in the article.
Relevance of the Findings
The research comprehensively discusses the research findings. As far as the financial markets still exist, the business people will always be interested in predicting market price changes for their stocks with scholarly articles previously showed that the use of technical analysis to ascertain the stock pricings was an outdated method as it was compared to playing a game on the stocks as indicated by the daily journals (Drew, 2011). The main finding as noted by the journal article is that global diversification of the relative strength portfolio that results in the investment of medium-term winners over the medium-term losers leads to earnings of up to one percent each month. The momentum is not restricted only a particular market, but over the entire market, samples are holding across the size deciles with return continuation higher for smaller companies as compared to that of the larger companies (Dobrynskaya, 2014). The paper also compares the European and the US momentum strategies confirming that there are close relationships due to standard components which in turn suggest that interaction between the regions to common factors result in better outcomes of the momentum strategies (ISRAEL, 2011).
The findings closely connect to the related literature. The most academic writing on momentum strategies focuses on the stock markets despite the effects of the dynamics have been noted in bond and commo...