A two-stage study of momentum investing in Asia: A case of cognitive dissonance?

This two-stage study investigates a puzzle involving professional investors in Asia, and suggests that it could be a case of cognitive dissonance. Historical data generally shows that momentum strategies yield poor results in Asian markets, but many investors still adopt them. The first stage of the study tests these strategies at the country level for 50 stock markets around the world, including 9 markets in Asia. It finds that they would have been profitable with global portfolios, but not with portfolios focused on Asia. The second stage involves interviews with 25 institutional investors in Hong Kong, and finds that nearly all of them use momentum strategies even when they are investing in Asia. They do this because they find these strategies work; because higher volatility in recent years has increased momentum effects; and because they are subject to pressures that force them to follow the trend. This study adds to our knowledge of how professional investors make their decisions, and complements the findings of other studies that show momentum strategies have been successful in many markets around the world, but are not always profitable in Asia.