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Momentum meets value investing in a small European market

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  • Júlio Lobão

    (University of Porto)

  • Marcos Azeredo

    (University of Porto)

Abstract

In this paper, we investigate two prominent market anomalies documented in the finance literature – the momentum effect and value-growth effect. We conduct an out-of-sample test to the link between these two anomalies recurring to a sample of Portuguese stocks during the period 1988–2015. We find that the momentum of value and growth stocks is significantly different: growth stocks exhibit a much larger momentum than value stocks. A combined value and momentum strategy can generate statistically significant excess annual returns of 10.8%. These findings persist across several holding periods up to a year. Moreover, we show that macroeconomic variables fail to explain value and momentum of individual and combined returns. Collectively, our results contradict market efficiency at the weak form and pose a challenge to existing asset pricing theories.

Suggested Citation

  • Júlio Lobão & Marcos Azeredo, 2018. "Momentum meets value investing in a small European market," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 17(1), pages 45-58, March.
    • Handle: RePEc:spr:portec:v:17:y:2018:i:1:d:10.1007_s10258-017-0132-2
    DOI: 10.1007/s10258-017-0132-2
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    References listed on IDEAS

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    1. Ladislav Kristoufek & Paulo Ferreira, 2018. "Capital asset pricing model in Portugal: Evidence from fractal regressions," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 17(3), pages 173-183, November.

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