Momentum in Norway: Traditional and Behavioral Explanations

Ida Mølster Lundefaret & Halvor Gangnes

Student thesis: Master thesis

Abstract

In this thesis we investigate whether a trading strategy of buying past winners and selling past losers is profitable. We find that this strategy, often referred to as a momentum strategy, yields positive returns on a 3 - 12 month horizon. More specifically, all 16 strategies yield between 1.95 and 3.39 percent monthly return on average. The thesis documents that the momentum profit is mainly driven by return continuation in loser stocks. Factor models reveal that much of the momentum return can be explained by systematic risk, size and momentum. Thus, we conclude that some of the momentum effect can be attributed to risk. However, the factor models were not able to fully capture abnormal return for all strategies. In order to explain the remaining, unexplained momentum return, we look at overreaction and underreaction as possible behavioral explanations, and find that these can indeed provide some insight into the momentum effect.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final ThesisMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2018
Number of pages110
SupervisorsSøren Plesner