Momentum Returns in Different Market Climates: Evidence from the Pakistani Stock Market

Abstract: In our study, we investigate the risk-return relationship under different market-climates for the momentum strategy on the Pakistan stock exchange (PSX) between February 1999 and February 2019. We test three strategies with different formation/holding-periods; 3/3, 6/6 and 12/3. We use a single-factor model (CAPM) to analyze these relationships. We find that every strategy yields zero to negative average excess returns, which below the market index average of 1.14%. The 6/6-strategy showed the highest performance of a monthly average excess return of 0.01%. This indicates that momentum is not present in Pakistan during this period. These findings are statistically significant at a 5% level. Overall, we find little to no differences in returns during differing market climates with the exception being higher excess returns during bull-periods.