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Profitability of Momentum Strategies on the Nordic stock market

Annerstedt, Per and Schönström, André (2006)
Department of Business Administration
Abstract
Purpose: The main purpose of the thesis is to examine the profitability of Momentum Strategies on the Nordic stock markets. This will provide insight and contribute to the debate on efficient markets. Finding profitable Momentum Strategies will provide strong evidence of inefficiency in the market. A secondary purpose is to examine factors which might cause or impact the profitability of the Momentum Strategy. We will look closely at the relationship between the profitability and factors such as risk (CAPM-beta), market capitalization, trading volume and seasonality. Methodology: This is a quantitative study on how the stock market behaves in a medium-term perspective. Overlapping portfolios are made based on 1,3,6,9,12 and 24 months... (More)
Purpose: The main purpose of the thesis is to examine the profitability of Momentum Strategies on the Nordic stock markets. This will provide insight and contribute to the debate on efficient markets. Finding profitable Momentum Strategies will provide strong evidence of inefficiency in the market. A secondary purpose is to examine factors which might cause or impact the profitability of the Momentum Strategy. We will look closely at the relationship between the profitability and factors such as risk (CAPM-beta), market capitalization, trading volume and seasonality. Methodology: This is a quantitative study on how the stock market behaves in a medium-term perspective. Overlapping portfolios are made based on 1,3,6,9,12 and 24 months historical returns. These portfolios are then held for additionally 1,3,6,9,12 and 24 months, yielding 36 strategies. This procedure is conducted on the Swedish, Danish, Finnish, Norwegian and the complete “Nordic market”. A test of robustness is then performed. We also examine factors that can explain or drive the Momentum effect. These are CAPM betas, firm size, volume and seasonality. Conclusions: Our results show Momentum profits to be made in all the Nordic stock markets with 3-12 months investment horizon. The zero-cost portfolios generate approximately 1% return monthly and the P10-portfolios (including past top performing stocks) consistently beat the market indices on average. (Less)
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author
Annerstedt, Per and Schönström, André
supervisor
organization
year
type
H1 - Master's Degree (One Year)
subject
keywords
Momentum, Contrarian, Efficient markets, Behavioural finance, Quantitative investing strategies, Management of enterprises, Företagsledning, management
language
Swedish
id
1348919
date added to LUP
2006-11-28
date last changed
2012-04-02 16:17:33
@misc{1348919,
  abstract     = {Purpose: The main purpose of the thesis is to examine the profitability of Momentum Strategies on the Nordic stock markets. This will provide insight and contribute to the debate on efficient markets. Finding profitable Momentum Strategies will provide strong evidence of inefficiency in the market. A secondary purpose is to examine factors which might cause or impact the profitability of the Momentum Strategy. We will look closely at the relationship between the profitability and factors such as risk (CAPM-beta), market capitalization, trading volume and seasonality. Methodology: This is a quantitative study on how the stock market behaves in a medium-term perspective. Overlapping portfolios are made based on 1,3,6,9,12 and 24 months historical returns. These portfolios are then held for additionally 1,3,6,9,12 and 24 months, yielding 36 strategies. This procedure is conducted on the Swedish, Danish, Finnish, Norwegian and the complete “Nordic market”. A test of robustness is then performed. We also examine factors that can explain or drive the Momentum effect. These are CAPM betas, firm size, volume and seasonality. Conclusions: Our results show Momentum profits to be made in all the Nordic stock markets with 3-12 months investment horizon. The zero-cost portfolios generate approximately 1% return monthly and the P10-portfolios (including past top performing stocks) consistently beat the market indices on average.},
  author       = {Annerstedt, Per and Schönström, André},
  keyword      = {Momentum,Contrarian,Efficient markets,Behavioural finance,Quantitative investing strategies,Management of enterprises,Företagsledning, management},
  language     = {swe},
  note         = {Student Paper},
  title        = {Profitability of Momentum Strategies on the Nordic stock market},
  year         = {2006},
}