Exploring Momentum: The Hidden Drivers of Stock Returns in the Nordic Market

Detta är en D-uppsats från Handelshögskolan i Stockholm/Institutionen för finansiell ekonomi

Sammanfattning: This thesis investigates the relationship between price momentum, earnings momentum, and stock returns in the Nordic region by examining the risk-adjusted performance measures of various momentum strategy portfolios. Inspired by Novy-Marx's 2015 theory that momentum in firm fundamentals explains the performance of price momentum strategies, this study seeks to provide deeper insights into momentum drivers and their implications for investment professionals. The paper focuses on 'Price Momentum' measured through eleven-month past performance (11MPM) and 'Earnings Momentum' measured through 'Standardized Unexpected Earnings' (SUE) and 'Standardized Earnings Surprise' (SES). Using monthly data from January 2003 to March 2023, we construct momentum strategy portfolios and calculate their portfolio excess returns, adjust for risk with Sharpe Ratios, and perform a series of linear regression analyses. Our findings show that while earnings momentum strategies outperform the market they do not outperform price momentum strategies. As a result, there is insufficient evidence to support the notion that price momentum is merely a weak manifestation of fundamental momentum.

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