Momentum Crashes in The Nordic Stock Market

Abstract

This thesis investigates momentum crashes in the Nordic stock market. We find that an unconditional price momentum strategy yields positive significant returns in the period 2003:01 to 2017:12 but experience severe drawdowns in the wake of the 2007 financial crisis. The crash is attributable to the short position in the portfolio of past losers who outperform past winners significantly when the market conditions ameliorate. We find that this can be explained by time variation in exposure to systematic factors as the momentum returns exhibit significant optionlike behaviour. In bear markets, a non-linear relationship between up- and downmarket betas show that the momentum portfolios have significant negative exposure when the market rebounds.