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.