Profitability of momentum investing strategies in an emerging market

This paper examines the profitability of momentum strategies on the Nigerian stock market over a 20-year period, from 1996 to 2016, using all listed equities on the Nigeria Exchange Limited (NGX) All Share Index. It also evaluates whether or not the profitability of momentum strategies is conditional upon the state of the market. A momentum strategy creates and buys a portfolio of past winners and short-sells a portfolio of past losers to generate excess profit. Our result shows that the Nigerian stock market exhibits medium-term price momentum, with eight out of sixteen strategies recording statistically significant excess momentum returns. The main contribution to the profit is from investing in winner portfolios, all of which recorded positive returns, and mostly significant. Evidence also shows that momentum profits depend on the state of the market. The momentum effect follows the UP market with a mean return of 0.2938%, while it is insignificant in the DOWN market with a mean return of -0.0237%. This paper offers valuable insight into market behavior, highlights the opportunities for alpha generation, and contributes to our understanding of market efficiency in emerging markets.