Asset Management and Industry Index Portfolios : Momentum and Reversal Abnormal Returns

This paper shed light to the existence of momentum and reversal patterns in the 18 industry indexes of DJ Euro Stoxx. The analysis is focus on European market and test a presence structural break in year 2000 (financial services and markets act). We made an analysis of five portfolios over eight retention periods, using eight year monthly data. Five portfolios were created on the basis of the returns of past industry indicators. Upon definition of the past returns, the sample is divided into quartiles. An additional portfolio represent the difference between worst and best performance portfolios. Once the existence of return patterns is identified, we check whether they should be related to the various industry betas of model portfolios or, on the contrary, should be attributed to bull or bear market trends. Momentum and reversal patterns are present over different building and retention periods. Finally, both analysis are performed considering the mean and median as well. Results confirm a presence of patterns (momentum or contrarian) in industry index portfolio strategies and explain a structural break at the year 2000. Average and median portofolio returns allow a robust validation of medium and long term asset management choices