Momentum profits in alternative stock market structures

Patricia L. Chelley-Steeley, Antonios Siganos

Research output: Contribution to journalArticle

Abstract

The aim of this study is to examine the relationship between momentum profitability and the stock market trading mechanism and is motivated by recent changes to the trading systems that have taken place on the London Stock Exchange. Since 1975 the London stock market has employed three different trading systems: a floor based system, a computerized dealer system called SEAQ and the automated auction system SETS. Since each new trading system has reduced the level of execution costs, one might expect, a priori, the magnitude of momentum profits to decline with each amendment to the trading system. However, the opposite empirical result is found showing that shares trading on the automated system generate higher momentum profits than those trading on the floor system and companies trading on the SETS system display greater momentum profitability than those trading on SEAQ. Our empirical results concur with the theoretical findings of the trader’s hesitation model of Du [Du, J., 2002. Heterogeneity in investor confidence and asset market under- and overreaction. Working paper] and the empirical findings of Arena et al. [Arena, M., Haggard, S., Yan, X., Price momentum and idiosyncratic volatility. Financial Review, in press].
Original languageEnglish
Pages (from-to)131-144
Number of pages14
JournalJournal of Multinational Financial Management
Volume17
Issue number5
DOIs
Publication statusPublished - Apr 2008

Keywords

  • momentum
  • SETS
  • SEAQ

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