Momentum investing: evidence from the US tourism and hospitality

Abstract

PurposeThe present research aims to examine a range of momentum trading strategies for the tourism and hospitality sector.Design/methodology/approachThe paper followed the methodology of Jegadeesh and Titman (1993) to construct the portfolios. In this methodology, all portfolios were formed and evaluated by their cumulative stock returns over the past J periods and holding the position for the next K periods. In total, nine formation and holding periods were used, represented by 3, 6 and 12. For example, strategy 3–3 (that is, strategy with J = 3 and K = 3) refers to the strategy that stocks are ranked based on their previous three months and then held for the next three months.FindingsThe findings demonstrated that none of these momentum investing strategies was profitable. Most of the results, however, show positive, but insignificant momentum returns. This finding can be interpreted as price reversal over a horizon of three to twelve months in the US hospitality and tourism sector. These results are robust to size, different formation and holding combinations, beta and turnover.Research limitations/implicationsRegarding the research limitations, this paper only considers the US tourism and hospitality sector. Therefore, the extension of results to other developed and developing markets should be taken carefully. Also, this paper relies only on the methodology of Jegadeesh and Titman (1993). Other methodologies could be suitable avenues for future research.Practical implicationsInvestors and portfolio managers who seek for earning abnormal returns by investing in the US HT stocks can attain their hopes by constructing portfolios based on existing guidelines in the literature and adopting a short-term reversal trading strategy or by buying past losers and selling past winners of the US tourism and hospitality stocks.Originality/valueThis research contributes to the hospitality finance literature by offering the investors who are interested in the US hospitality and tourism sector an uncomplicated trading rule that uses real return data and is expected to generate actual returns. Moreover, the momentum strategy of Jegadeesh and Titman (1993) is never used in the hospitality finance literature.