Building Superior Active Portfolio by Using Momentum Trading Strategies

(Applied Study in Iraqi Stock Exchange)

A Dissertation Submitted By
Mohammed Faiz Hassan Al-Zauba’ay
To The Council of College of Administration and Economics at Karbala University, As Partial Fulfillment of the
Requirements for PH.D. Degree Financial and Banking Sciences.

Under The Supervision

Prof. Dr. Hakem Mohsen Al-Robaiee Ass. Prof. Dr.Haider Yones Al-Musawee

The technical analysis consider one of the oldest methods in portfolio construction, although the Markowitz findings and its simplifications modifications that followed by Tobin and Sharp, add to that Fama EMH , But Technical analysis tools and methods developed dramatically in conjunction with Technology rapid Grow, that led technical approach to excess fundamental approach with many investment choices, that made more investors to enhancing their portfolios with technical methods, one from these methods was Momentum effect, which became widely known after ( Jegadeesh & Titman 1993 ), the study importance came from how to use momentum strategies to build a superior active portfolio in ISX , the study problem cover questions like, what about momentum availability in ISX, Its specifications, Does cover transaction cost , Does it appear in a specific period instead of other , Could be momentum Active portfolio excess its peer market portfolio . For that, the study uses multiple financial and statistical methods and to confirm that we use the sample to contain 29 stocks, which was high activity in trading in that sample duration which was started from (January 2010) to (February 2015). Also using (MS Excel 2013) and (Minitab V 17) Software Packages in forming stock picking models, momentum portfolio formation, and Market portfolio. The study concludes that momentum resulting from momentum portfolio in Iraq stock market was weak and non-significant which calculate according (Jegadeesh & Titman 1993) methodology. In addition, significant only in Time event study before Transaction Cost. The momentum fades away after considering Transaction Cost. In contrast, it achieves risk adjusted return in momentum winner portfolio as an Active portfolio in time event studies. The same result found in momentum loser Portfolio (short selling) but it is not allowed in Iraqi stock market. Add to that Weak contrarian style appear in the very short term (one Week). In most cases, losers performing better than winners. The main recommendations of the current study were cannot use momentum portfolios in Iraqi stock market as a complete portfolio ( Winners plus losers) but only winners as an active portfolio can exceed market in risk adjusted return with transacting cost. And the study recommends for Iraqi stock market Authority to revise Transaction Cost in the market and lower it as possible to encourage and promote for active investing and allowing short selling with its regulations and rules because of its importance as a source of profits and for its role in the trading activity.