Anomalies in the European Stock Market. A Black Swan?

Rasmus Mühlback Hansen

Student thesis: Master thesis


Historical stock prices are connected to future stock prices hereby raising the question if the historic prices can be applied to consistently achieve significant abnormal returns, formally known as Momentum investing. In other words, this project investigates whether Momentum is an anomaly of the Efficient Market Hypothesis. By examining how the past 3 to 12 months returns can be used to achieve significant abnormal returns over the next 3 to 12 months, this project aims to falsify the Efficient Market Hypothesis and thereby determine if the hypothesis accurately describes the European stock market. A dataset consisting of the stocks that have been in the European STOXX 600 index between 1999 and 2021 was the base for this analysis. Two risk adjustment approaches to avoid or at least reduce the risk of momentum crashes was applied. The results show that it is possible to consistently achieve significant abnormal returns by using the past 3 to 12 months returns to select which stocks to buy and hold for the next 3 to 12 months indicating that markets are not efficient. And although the analysis as expected found and covered the severe effect of momentum crashes, the two risk adjustment approaches where successful in improving the risk-adjusted return.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
Publication date2022
Number of pages79
SupervisorsJesper Rangvid