An Empirical Evaluation of a 52-Week Momentum Strategy for Forming a Superior Active Portfolio: Evidence from the Iraqi Stock Exchange

Abstract

The use of technical analysis methods is considered one of the fundamental pillars of trading in financial markets. These methods vary, and their applications differ among traders. Among the well-known techniques is momentum trading, which allows for a clear view of the strength and movement of prices. This, in turn, provides traders with signals to buy or sell stocks. The momentum strategy has proven successful in the markets, especially when analyzing stock performance over a 52-week period. Investors following this strategy build their portfolios by buying high-performing stocks and selling low-performing ones. When a stock or index surpasses its highest level over the past 52 weeks, it is considered a positive indicator for price movement. The objective of this study is to test the feasibility of momentum strategies based on 52-week returns for stocks listed on the Iraq Stock Exchange, aiming to achieve exceptional profits while considering the ability of winning momentum portfolios to overcome transaction costs in the Iraqi stock market. One of the key findings of the study is that momentum portfolios, following the 52-week strategy, generate returns, but these returns are not statistically significant. These returns diminish with the inclusion of transaction costs. Due to the high transaction costs within the Iraqi stock market, the study advises against using the 52-week high strategy due to the lack of profit coverage for transaction costs within the market.