How the Stock Universe Changes Korean Price Momentum Performance

Summary

This study examines whether price momentum performance in Korean equities changes when the eligible universe is narrowed to subgroups of the KOSPI 200. It compares momentum returns across submarkets and checks the pattern against portfolios sorted by company size and liquidity. The analysis highlights that strategy results depend on which stocks are included, rather than remaining uniform across the tested universes.

Some narrower markets produce higher momentum returns, while large-cap constituents such as the KOSPI 50 are reported to weaken strategy performance. Investor group activity, especially foreign investors’ trading patterns, is proposed as a possible source of this universe shrinkage effect. The document offers findings from this market-specific comparison but supplies no period, return estimates, transaction cost treatment, or risk-adjusted results. Its results therefore do not establish that excluding large companies will improve momentum elsewhere or remain effective after implementation costs.

Key ideas

• Momentum returns vary when the Korean stock universe is restricted to different KOSPI 200 submarkets.
• Some smaller or narrower universes show higher momentum returns than other tested groups.
• Large companies, including KOSPI 50 constituents, are reported to hinder strategy performance.
• The study cross-checks the pattern using size-sorted and liquidity-sorted portfolios.
• Foreign investor trading is proposed as one possible driver of the universe effect.

Tags

# Momentum universe shrinkage effect in price momentum


# Momentum universe shrinkage effect in price momentum









We test the price momentum effect in the Korean stock markets under the momentum universe shrinkage to subuniverses of the KOSPI 200. Performance of the momentum strategy is not homogeneous with respect to change of the momentum universe. It is found that some submarkets generate the higher momentum returns than other universes do but large-size companies such as the KOSPI 50 components hinder the performance of the momentum strategy. The observation is also cross-checked with size portfolios and liquidity portfolios. Transactions by investor groups, in particular, the trading patterns by foreign investors can be a source of the momentum universe shrinkage effect in the momentum returns.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.