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Financial Behavior and the Momentum Strategy

Josefsson, Olle LU ; Eliasson, Emil LU and Thörning, Fredrik LU (2018) FEKH89 20181
Department of Business Administration
Abstract
Title: Financial Behavior and the Momentum Strategy
Seminar date: 2018-05-31
Course: FEKH89, Bachelor’s Degree Project in Financial Management, Business
Administration, Undergraduate Level, 15 ECTS
Authors: Emil Eliasson, Olle Josefsson, Fredrik Thörning
Advisor: Maria Gårdängen

Purpose: The authors of this thesis aim to study if it is possible to generate a
better Sharpe ratio within the CAPM-theory using a mathematical model to buy and
sell a risky asset depending on the market volatility. The authors then aim to explain
the changes in volatility by discussing anomalies in the market.

Methodology: In order to fulfill the purpose and to answer the research questions,
the methodology of this thesis is heavily based on a... (More)
Title: Financial Behavior and the Momentum Strategy
Seminar date: 2018-05-31
Course: FEKH89, Bachelor’s Degree Project in Financial Management, Business
Administration, Undergraduate Level, 15 ECTS
Authors: Emil Eliasson, Olle Josefsson, Fredrik Thörning
Advisor: Maria Gårdängen

Purpose: The authors of this thesis aim to study if it is possible to generate a
better Sharpe ratio within the CAPM-theory using a mathematical model to buy and
sell a risky asset depending on the market volatility. The authors then aim to explain
the changes in volatility by discussing anomalies in the market.

Methodology: In order to fulfill the purpose and to answer the research questions,
the methodology of this thesis is heavily based on a mathematical algorithm. The
algorithm is set to trade a hypothetic portfolio in order to generate a better result
than the index. With primarily the non-traditional theories mentioned below, the
result is then compared with the chosen indices.
Theoretical perspectives: Theories used in this thesis can be divided into traditional
and non-traditional theories in economics. The traditional perspective is
represented by the Efficient Market Hypothesis, EMH, and the Capital Asset Pricing
model, CAPM. The non-traditional theories are Behavioral Finance and Herd Behavior.
Empirical foundation: The empiric analyzed in this thesis is based on the performance
of the algorithm and the two indices Dow Jones Industrial Average and
Standard and Poor’s 500. The analyzed period is from the beginning of 1998 until
the end of 2017.

Conclusions: The algorithm is able to gain a better Sharpe ratio than the market
index on Standard and Poor’s 500 but not on Dow Jones Industrial Average. The
authors found the cause to be an unreasonable high volatility on Dow Jones Industrial
Average in the year of 2000 and 2016. This forces the algorithm to execute unnecessary
trades and therefore gain a weak return due to transaction costs. (Less)
Please use this url to cite or link to this publication:
author
Josefsson, Olle LU ; Eliasson, Emil LU and Thörning, Fredrik LU
supervisor
organization
course
FEKH89 20181
year
type
M2 - Bachelor Degree
subject
keywords
Behavioral Finance, Momentum Strategy, CAPM, Sharpe Ratio and Trading
language
English
id
8955104
date added to LUP
2018-09-10 11:19:45
date last changed
2018-09-10 11:19:45
@misc{8955104,
  abstract     = {Title: Financial Behavior and the Momentum Strategy
Seminar date: 2018-05-31
Course: FEKH89, Bachelor’s Degree Project in Financial Management, Business
Administration, Undergraduate Level, 15 ECTS
Authors: Emil Eliasson, Olle Josefsson, Fredrik Thörning
Advisor: Maria Gårdängen

Purpose: The authors of this thesis aim to study if it is possible to generate a
better Sharpe ratio within the CAPM-theory using a mathematical model to buy and
sell a risky asset depending on the market volatility. The authors then aim to explain
the changes in volatility by discussing anomalies in the market.

Methodology: In order to fulfill the purpose and to answer the research questions,
the methodology of this thesis is heavily based on a mathematical algorithm. The
algorithm is set to trade a hypothetic portfolio in order to generate a better result
than the index. With primarily the non-traditional theories mentioned below, the
result is then compared with the chosen indices.
Theoretical perspectives: Theories used in this thesis can be divided into traditional
and non-traditional theories in economics. The traditional perspective is
represented by the Efficient Market Hypothesis, EMH, and the Capital Asset Pricing
model, CAPM. The non-traditional theories are Behavioral Finance and Herd Behavior.
Empirical foundation: The empiric analyzed in this thesis is based on the performance
of the algorithm and the two indices Dow Jones Industrial Average and
Standard and Poor’s 500. The analyzed period is from the beginning of 1998 until
the end of 2017.

Conclusions: The algorithm is able to gain a better Sharpe ratio than the market
index on Standard and Poor’s 500 but not on Dow Jones Industrial Average. The
authors found the cause to be an unreasonable high volatility on Dow Jones Industrial
Average in the year of 2000 and 2016. This forces the algorithm to execute unnecessary
trades and therefore gain a weak return due to transaction costs.},
  author       = {Josefsson, Olle and Eliasson, Emil and Thörning, Fredrik},
  keyword      = {Behavioral Finance,Momentum Strategy,CAPM,Sharpe Ratio and Trading},
  language     = {eng},
  note         = {Student Paper},
  title        = {Financial Behavior and the Momentum Strategy},
  year         = {2018},
}