ABSTRACT. The paper has discussed momentum in stock index and empirically examined various factors contributing in generation of momentum. The relative importance of momentum as a factor in the CAPM asset pricing model is also discussed. Momentum return is estimated from the National Stock Exchange of India. The empirical findings of the paper indicate inverse relationship of Price-Earnings Ratio, Dividend Yield, Index of Industrial Production and Terms Spread with momentum returns. Using Vector Autoregressive (VAR) methodology, it is also observed that momentum is an inherent factor in the pricing of capital asset. The methodology also used the Impulse Response Function (IRF) to articulate the response of momentum to any change in the macroeconomic and firm-specific factors. Along with Price-Earnings Ratio, Price-Book Ratio and Dividend Yield, Momentum Payoffs is added as a fourth factor to test the Fama-French unconditional CAPM. The present study included momentum as an additional factor to empirically test the Chordia and Shivakumar (2002) 4-Factor model in the Indian context. The study also estimated the ARCH effect to understand the “Momentum Clustering” in the obtained momentum series. pp. 86–109
JEL Codes: H54; R53
Keywords: momentum; CAPM; market reaction; clustering
How to cite: Misra, Arun Kumar, and Sabyasachi Mohapatra (2014), “Evidence and Sources of Momentum Profits. A Study on Indian Stock Market,” Economics, Management, and Financial Markets 9(3): 86–109.