Momentum in Sweden: Past Returns and Continuing Overreaction

Sammanfattning: Comparing the performance of a traditional long-short momentum trading strategy to one based on a measure for continuing overreaction on OMXS 1997-2016, this study shows that traditional momentum only generates significant profits in the short-term. On the contrary, the continuing overreaction approach provides investors with significant profits for a variety of different holding- and formation periods, mainly attributable to its ability to pick winners. We show that these profits are not due to loading on common systematic risk factors and that the predictive power of the continuing overreaction measure outperforms momentum in the cross-section of future stock returns.