Momentum effect is the result of investors’ over-reaction in the stock market. When sales of a company increase and investors have anomaly expectation toward its operation, the extent of investors’ reaction may be even greater. We can see that sales of a business certainly influence its momentum effect. Moreover, investors’ behaviors are usually adjusted according to business cycle in the market thus the momentum effect changes upon the fluctuation of business cycle.In this study, Vector Autoregression model was used to examine the momentum as well as sales momentum in Taiwan, taking monthly data samples from 2001 to 2010. The results are as follow: (1) There is momentum effect in Taiwan stock market.(2) Momentum profit in a prosperous business cycle outperforms that in a recessive one. (3) Sales momentum exists in Taiwan stock market. (4) Business cycle affects momentum and sales momentum, and momentum affects sales momentum.
