Quantitative Momentum in the Nordic Markets
Abstract
There is a considerable amount of research on momentum investing in the Nordic
markets based on the Generic Momentum Strategy (GMS) of Jegadeesh & Titman
(1993). In their Quantitative Momentum Strategy (QMS), Gray & Vogel (2016)
proposes a modified momentum strategy that focuses on the path-dependency of
momentum. This thesis aims to study if this variation of momentum investing not
only yields better returns than the market but also improves the returns obtained
with the conventional momentum approach. Our research finds that the QMS is an
improvement of the GMS regardless the combination of formation and holding
periods. Furthermore, the QMS(J12K3) is the only strategy consistently
outperforming the broad-based indices across the Norwegian, Swedish, Danish
and combined Nordic market. On a risk-adjusted basis, the QMS(J12K3) applied
to the combined Nordic market delivers a positive and significant annualized
alpha of 5.6% when regressed on the Carhart 4-factor model for the whole sample.
We conclude that the QMS(J12K3) in the Nordic market delivers higher net
returns than the MSCI Nordic Index, with lower volatility and lower maximum
drawdowns. Similar conclusions are valid when looking at the markets in
Norway, Sweden and Denmark. The results, however, are not conclusive for
Finland. Based on our findings, we believe investors may enjoy the profitability
and significant out-performance of the Quantitative Momentum Strategy in the
Nordic markets.
Description
Masteroppgave(MSc) in Master of Science in Finance - Handelshøyskolen BI, 2018