Enhanced Risk-Adjusted Returns Through Momentum Adaptations - Analysis on Momentum Strategies in the Nordic Stock Market
Momentum strategies where one buys past winners and sells past losers are one of the most persistent stock market anomalies, showcasing abnormal returns across different markets, asset classes and time periods. Nevertheless, price momentum has been shown by the financial literature to possess considerable hazards, such as high volatility and crash risks. This has consequently led to the introduction of enhanced momentum strategies including both alpha and idiosyncratic momentum, that aim to provide abnormal returns with less risk. The purpose of the thesis is therefore to investigate and compare momentum strategies in the Nordic stock market to identify which strategy provides the best risk-adjusted returns. The results indicate that momentum profits also exist in the Nordics with support found for both behavioral- and risk-based explanations. Furthermore, the alpha momentum strategy consistently demonstrates superior risk-adjusted returns across multiple settings.
MSc in Finance
Master Degree Project
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Kavleskog, Sebastian; Rolfsson, John (2020-07-07)Momentum strategies offer tempting expected returns but suffer from occasional momentum crashes. Crash mitigating strategies, such as the Absolute momentum (Gulen and Petkova, 2018) and Extreme absolute strength momentum ...
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