Industry Affects Do Not Explain Momentum in Canadian Stock Returns

Similar to previous Canadian, US, and international studies, we find evidence of momentum in stock returns, using a Canadian sample over the 1981 to 1999 period. However, unlike recent US evidence provided by Moscowitz and Grinblatt (1999), we cannot attribute the majority of the excess returns produced by a stock momentum strategy to industry momentum. While we do find evidence that industry momentum strategies offer some potential for excess returns, these returns are well below those produced by a stock momentum strategy. In addition, the composition of our stock momentum portfolios with respect to industry momentum groups is not nearly as concentrated in “hot” (or “cold”) industries as one would expect if industry factors were driving individual stock momentum. Finally, stock momentum portfolios continue to offer excess returns on a risk-adjusted basis, even after making adjustments for industry returns. In short, industry factors do not explain momentum in Canadian stock returns.