Seasonal Effect for Explaining Price Momentum Failure in the Japanese Stock Market

Abstract

In our study we investigate the presence of calendar patterns on the high volatility of Japanese stock market and their influence on the medium-term price momentum effect as an anomaly in the stock pricing. We document that calendar effects are presented on the Japanese stock market and have a negative influence on the momentum profits, recorded over two months of consistently negative momentum profits. Momentum returns are substantially negative in January, which is in line with other studies (e.g. Jegadeesh and Titman, 1993), and in May. The price momentum strategy loses about 2-4% on average each January and 1.9%-4.2% in May across the 16 portfolios. The investor should consider fundamental characteristics of companies and the stage of the business cycle to increase the momentum profits.