Does industry concentration explain the profits of the robust minus weak strategy?

Abstract

This thesis aims to better understand the Robust Minus Weak (RMW) strategy by looking at how profitability and industry competition work together from 1959 to 2023. The study uses the industry momentum tests from Moskowitz and Grinblatt (1999) to do this. The study is divided into three steps: first, repeating the original momentum tests for 1963-1995; second, expanding the analysis to 1926-2023; and third, using the same tests to see how much industry competition affects the RMW strategy’s profits. The first step works well, matching the original findings. The second step shows similar results over a longer period, proving that momentum patterns last over time. In the third step, the RMW strategy gives a monthly profit of 2.41% when looking at all companies. When focusing only on companies within the same industry, the profit drops to 1.10%, showing that industry competition plays a small role in these profits. Other tests show even smaller or negative profits, at 0.46% and -1.39%, suggesting industry effects can vary.

Date of Award	18 Jul 2025
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Francisco José Guedes dos Santos (Supervisor)