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Portfolio construction based on value and momentum: a winning strategy?

Grann, Andreas LU (2017) NEKN02 20171
Department of Economics
Abstract
This study examines if there are positive effects of constructing portfolios based on value and momentum. Three value portfolios (low, medium, high) and three momentum portfolios are constructed using large cap stocks from the four Nordic Nasdaq OMX exchanges. The portfolios are then re-sorted on an annual basis over the test period 2005-2016. Furthermore, two long-short market neutral portfolios are constructed using the full sample of stocks for both the value and momentum measure. The result shows a positive average value effect over time but a negative average momentum effect. For all portfolios, increased return is accompanied with increased volatility. The market neutral portfolios confirm that there might be a positive value effect... (More)
This study examines if there are positive effects of constructing portfolios based on value and momentum. Three value portfolios (low, medium, high) and three momentum portfolios are constructed using large cap stocks from the four Nordic Nasdaq OMX exchanges. The portfolios are then re-sorted on an annual basis over the test period 2005-2016. Furthermore, two long-short market neutral portfolios are constructed using the full sample of stocks for both the value and momentum measure. The result shows a positive average value effect over time but a negative average momentum effect. For all portfolios, increased return is accompanied with increased volatility. The market neutral portfolios confirm that there might be a positive value effect and a small negative momentum effect. Moreover, a 50/50 combination strategy of value and momentum is employed that decreases the portfolio volatility due to negative correlation. The momentum effect seems to have been impacted by the financial crisis in 2008 with small positive effects being observed before the crisis that then disappears, inconsistent with the value effect which starts to appear after the crisis. This might have to do with momentum as a concept being destroyed after the crisis or possibly that an increased interest to invest based on momentum has arbitraged such benefits away. (Less)
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author
Grann, Andreas LU
supervisor
organization
course
NEKN02 20171
year
type
H1 - Master's Degree (One Year)
subject
keywords
Value, momentum, portfolios, stocks
language
English
id
8916092
date added to LUP
2017-06-16 12:08:53
date last changed
2017-06-16 12:08:53
@misc{8916092,
  abstract     = {This study examines if there are positive effects of constructing portfolios based on value and momentum. Three value portfolios (low, medium, high) and three momentum portfolios are constructed using large cap stocks from the four Nordic Nasdaq OMX exchanges. The portfolios are then re-sorted on an annual basis over the test period 2005-2016. Furthermore, two long-short market neutral portfolios are constructed using the full sample of stocks for both the value and momentum measure. The result shows a positive average value effect over time but a negative average momentum effect. For all portfolios, increased return is accompanied with increased volatility. The market neutral portfolios confirm that there might be a positive value effect and a small negative momentum effect. Moreover, a 50/50 combination strategy of value and momentum is employed that decreases the portfolio volatility due to negative correlation. The momentum effect seems to have been impacted by the financial crisis in 2008 with small positive effects being observed before the crisis that then disappears, inconsistent with the value effect which starts to appear after the crisis. This might have to do with momentum as a concept being destroyed after the crisis or possibly that an increased interest to invest based on momentum has arbitraged such benefits away.},
  author       = {Grann, Andreas},
  keyword      = {Value,momentum,portfolios,stocks},
  language     = {eng},
  note         = {Student Paper},
  title        = {Portfolio construction based on value and momentum: a winning strategy?},
  year         = {2017},
}