Momentum as an Investment Strategy in the Indian Stock Market-An Evaluative Study

The Indian Stock market has witnessed a major transformation and structural change from the 10 to 15 years as a result of the ongoing economic and financial sector reforms initiated by the government of India since 1991.Among these measures, lifting of barriers and opening up the doors for foreign investors have promoted integration of Indian markets with other foreign markets, especially other emerging countries. The Efficient Market Hypothesis (EMH) (Fama, 1970) suggests that prices are theoretically unpredictable and therefore there is no extra profit existing in the market. However in the real world situation EMH is strongly challenged by many financial anomalies. Many studies conducted by academicians and practitioners have recognized that average stock returns are related to past performance and the stock returns are predictable based on past returns. Momentum strategy believes that stocks which have performed well in past will be doing so, also in the future. It buys stocks with good historical performance and sells stocks which have done worse. The aim of this study is to evaluate Momentum as an Investment Strategy, its profitability in Indian stock market and reasons explaining their existence in the current market trends