Bob Li

The Last Alibi: Shari'ah Compliant Stocks on Momentum Profitability Assessment

Abstract Purpose Ever since the publication of the original Jegadeesh and Titman (1993) study, momentum effect has been tested vigorously to validate its pervasiveness for different time periods and across different markets. In spite of numerous out-of-sample tests, there is one apparent alibi – little research has been devised for steady increasing of Shari’ah compliant stocks. Methodology/approach This study is to examine the momentum strategy returns in a global Shari’ah compliant stock setting. Findings It finds strong presence of stock momentum returns for Pakistan and Malaysia. And the momentum returns are neither driven by industry momentum nor by the small size stocks. Though no momentum profits are found for the portfolios formed by global Shari’ah compliant stocks, this seems to be largely due to return reversal for the small size Shari’ah compliant stocks. Originality/value The strong presence of momentum profits for relatively large Shari’ah compliant stocks is a desirable trait as it indicates that the momentum trading strategies are practical and implementable.