Momentum, Legal Systems and Ownership Structure: An Analysis of Asian Stock Markets Andy C.W. Chui Sheridan Titman K.C. John Wei

This paper examines momentum profits in eight Asian markets with a focus on ownership structure, legal systems and valuation uncertainty. 1. Momentum strategies, which buy past winners and sell past losers, are highly profitable outside Japan. 2. The common law/civil law distinction functions as a perfect indicator. 3. The momentum effect is relatively stronger for firms with smaller SZ, lower BM, and higher turnover ratios. 4. The momentum effect is stronger for independent firms than for group-affiliated firms. More.

Comments: Another masterpiece of work. Now, pretending to be picky, I raise some (probably silly) questions: 1. Is it proper to use the 30%, 40%, and 30% prior-return- based portfolio returns to conclude the momentum effect? For example, SML and HMB are positive but not significant in most stock markets, e.g. the Tokyo Stock Exchange. Can we say that there are no SZ and BM effects in those markets? Probably no. Chan (1988) suggests that extremity matters.

2. The authors conclude that the momentum effect is stronger for firms with lower BM and high foreign ownership. Are they a same thing? If foreign investors likely buy “good” (low BM) stocks, the relationship between foreign ownership and the momentum effect may be excessive. 3. In Table XI reporting the results of momentum profits and foreign ownership, does it make sense that (High Winner-Loser) – (Low Winner-Loser) ? Because, the 5×3 portfolios are derived under a two-dimension dependent sort. Can the authors compare the zero-cost returns (Winner-Loser) across the foreign-ownership groups?