Can individual investors duplicate professional momentum investing?

Abstract

Pettengill, Edwards and Schmitt (2006) compare the selections made by the professionals and the readers in The Wall Street Journal Dartboard Contest. They find that the selections of the professionals are significantly more profitable than the selections of the readers and argue that momentum investing is not a viable choice for individual investors. In this study, we investigate whether individual investors can benefit by mimicking investment choices of professionals as displayed in this contest. In order for individual investors to benefit from this information there must be discernable differences in the selections made by the readers and the pros. We examine a number of characteristics that have been shown to cause return differentials between securities, in general, and in momentum securities, in particular. If the selections of the pros and the readers differ with respect to these characteristics and these differences can explain the observed return differentials in the contest, then individual investors might be able to mimic the momentum investing of the pros. Because we find these characteristics do not explain the return differentials between the pros and the readers, we reject the proposition that individual investors can benefit by mimicking the momentum investing behaviors of the pros.