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Short-term Predictability on the International Capital Markets – Momentum Effect

Author

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  • Bozhidar Nedev

    (University of Sofia, Bulgaria)

Abstract

This paper systematizes the research achievements, related to the short-term return predictability of stocks or the so-called momentum effect as identified by Jegadeesh and Titman (1993). It turned out to be one of the strongest evidences against the Efficient Market Hypothesis. Despite its popularity in the investment and academic community momentum effect does not disappear. Momentum investment strategies continue to be profitable except in times of high market volatility. Momentum effect is also profitable on the most of the international stock markets. It is difficult to develop a rational explanation of the presence of momentum effect according to the academic community. That is why, researchers turn to behavioural finance. Although these models do not reveal an unambiguous answer for the driver of the phenomenon, they succeed in interpreting it more comprehensively than conventional economic theory.

Suggested Citation

  • Bozhidar Nedev, 2018. "Short-term Predictability on the International Capital Markets – Momentum Effect," Ikonomiceski i Sotsialni Alternativi, University of National and World Economy, Sofia, Bulgaria, issue 2, pages 121-135, April.
    • Handle: RePEc:nwe:iisabg:y:2018:i:2:p:121-135
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    More about this item

    Keywords

    momentum effect; behavioural finance; rational economic theory; stock exchanges; investment strategies;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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