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Momentum: Strategies, Size and Risk Factor

Author

Listed:
  • João Alberto Contim Martins

    (FEP-UP, School of Economics and Management, University of Porto)

  • Francisco Vitorino da Silva Martins

    (FEP-UP, School of Economics and Management, University of Porto)

  • Elísio Fernando Moreira Brandão

    (FEP-UP, School of Economics and Management, University of Porto)

Abstract

This study aims to understand what the actual impact of the momentum anomaly on the financial markets. Based on the profitability of sixteen momentum strategies for the German market, it appears that strategies with short formation and holding periods produce attractive returns for the investors. However, it is shown that a considerable amount of the results of these strategies is justified by the systematic risk. It also studied the relationship between firm’s size and results of momentum strategies. According to this study, the momentum is stronger in firms with low market value, but the returns of their strategies are smaller for this group of firms. Finally, it analyzed the ability of the momentum to explain the variation in stock returns. The results show that the inclusion of the momentum variable in asset pricing models does not increase their efficiency.

Suggested Citation

  • João Alberto Contim Martins & Francisco Vitorino da Silva Martins & Elísio Fernando Moreira Brandão, 2016. "Momentum: Strategies, Size and Risk Factor," FEP Working Papers 582, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:fepwps:582
    as

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    File URL: http://www.fep.up.pt/investigacao/workingpapers/wp582.pdf
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    References listed on IDEAS

    as
    1. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    2. Fama, Eugene F. & French, Kenneth R., 2012. "Size, value, and momentum in international stock returns," Journal of Financial Economics, Elsevier, vol. 105(3), pages 457-472.
    3. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    4. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    5. Fama, Eugene F & French, Kenneth R, 1996. "Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Momentum Strategies; Systematic Risk; Firms Size; Stock Returns;
    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

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