Momentum Investment Strategies: A Study of Momentum Returns and the January Effect in the Nordic Stock Markets

Frederik Jens Holm Jacobsen & Philip Rosendal Nyhegn

Student thesis: Master thesis


This study contributes to the discussion of the profitability of momentum investment strategies and the degree to which the January Effect is still present in today’s developed stock markets by examining long-, intermediate- and short-term momentum strategies. The formation of the portfolio in the long-term strategy is based on past performance from the period t-12 to t-2, where t is the month of formation. The portfolios in the intermediate- and short-term strategies are formed based on past performance in t-12 to t-7 and t-6 to t-2 respectively. This thesis is based on a sample of 1,254 unique public companies listed on stock exchanges in Denmark, Sweden, Finland and Iceland in the time period 01.01.2007 to 31.01.2021. We find that the three zero-cost momentum strategies analysed have been profitable in the Nordic stock markets across this time period with significant average monthly excess returns. While we observe that long-term and short-term strategies perform better than the intermediate-term strategy, we are not able to conclude that one strategy performs significantly better than the other based on statistical evidence. A division of the data sample into a small and large sub-sample provides evidence that significant momentum returns can be found among both small and large companies. However, we conclude that the small sample significantly outperforms the large sample in all cases, thereby indicating that the momentum effect is notably more profound in smaller firms. Finally, we find that even after adjusting for CAPM and the Fama-French three-factor model the momentum strategies continue to realise positive abnormal returns, why these are unable to fully explain the momentum returns achieved. In terms of the January Effect, we detect a presence of this in the Nordic stock markets. We can document with a 10% significance level that investing in January results in significantly higher returns compared to investments conducted outside of January. Moreover, we observe that the January Effect has a negative impact on excess returns for each of the momentum strategies examined. In relation to this, we find that small firms on average tend to realise higher returns in January, and that the January Effect appears to be more profound in past losers regardless of size, which consequently results in lower momentum returns for the zero-cost strategies analysed. Thus, by examining the performance of momentum investment strategies and the impact of the January Effect on said strategies from a contemporary perspective we contribute to current literature.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final ThesisMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
Publication date2021
Number of pages104