Price momentum and trading volume on the JSE Securities Exchange

In efficient equity markets no interference about future returns can be made from past returns and past trading volumes. behavioural finance questions this view pointing to persistent market anomalies. Past returns and past trading volumes of up to one year were used to form winner and loser portfolios, high volume and low volume portfolios, and portfolios with both extreme returns and extreme volumes. Portfolios were held for periods of up to one year and returns were examined. It was found that winner portfolios out performed loser portfolios and that a zero cost strategy out performed a market portfolio. High volume portfolios outperformed low volume portfolios for formation periods of up to six months. For portfolios based on past volume and past returns winners outperfoemd the market irrespective of volume and losers under performed the market irrespective of volume. Zero cost portfolios conditional on low volume show return momentum emerging for formation periods longer than six months. Similarly momentum for portfolios conditional on high volume dissipates after formation periods longer than about six months. The results suggest that past returns and past volumes have independent explanatory power with respect to future returns. Specifically past volumes indicate the magnitude and prsistnce of future returns.