Due to high transaction costs, it seems sensible to use non-overlapping holding periods when executing a momentum strategy. In this case, all 16 momentum strategies still realize abnormal returns; however, most of the returns are not significantly different from zero.
Researchers have struggled to explain the source of the momentum anomaly. Possible explanations include, but are not limited to; data mining, risk-based explanations and behaviour based explanations. It has been suggested that the momentum effect is simply the results of data mining. A large body of evidence across different time periods and different stock markets makes such an explanation unlikely to be the cause of the momentum effect. This thesis investigates whether momentum returns can be explained by rational asset pricing models. By performing a regression analysis we find that neither the CAPM nor the Fama-French 3-factor model are able to explain the momentum returns fully, which is in line with previously conducted studies such as Jegadeesh &
Titman (2001) and Fama & French (1996). Various models within behavioral finance have been proposed to explain the momentum effect. However, even though testing such models is outside the scope of this thesis, we encourage others to pursue this venue. We believe that such contributions can bring us closer at explaining the momentum effect on the Oslo Stock Exchange.
Finally, we would like to stress that there might be other explanations for our momentum results that we have not covered in this thesis.
Chapter 10 Bibliography
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10.4 Data Source
Thomson Reuters Datastream
Appendix Overview
Appendix I Stock list ... 1
A 1 Overview of Stocks in Data Sample ... 1
Appendix II VBA Formulas ... 2
A 2 VBA-Function for Non-Overlapping Method ... 2
A 3 VBA-Function Overlapping Method - Loser Portfolio ... 2
A 4 VBA-Function Overlapping Method - Winner Portfolio ... 2
Appendix III OSEAX Returns for All Momentum Strategies ... 3
A 5 Overview of Market Index Performance for All Momentum Strategies ... 3
Appendix IV Size Split and Liquidity Adjustment ... 3
A 6 Size Split Table – Winner Portfolio ... 3
A 7 Size Split Table – Loser Portfolio ... 3
A 8 Size Split Table - Zero-Cost Portfolio ... 4
A 9 Liquidity Adjusted Size Split Table - Zero-Cost Portfolio ... 4
A 10 Winner Portfolio of the 6x6 Strategy divided into size groups and liquidity adjusted... 5
A 11 Liquidity Adjusted Size Split Table - Winner Portfolio ... 5
A 12 Loser Portfolio of the 6x6 Strategy divided into size groups and liquidity adjusted ... 6
A 13 Liquidity Adjusted Size Split Table - Loser Portfolio ... 6
A 14 Size Split Table - Market Value Overview ... 6
A 15 Liquidity Split Table - Turnover Volume Overview ... 7
Appendix V OLS Assumptions ... 7
A 16 Scatterplot: Winner Portfolio against OSEAX ... 7
A 17 Scatterplot: Loser Portfolio against OSEAX ... 8
A 18 Residuals: CAPM – Winner Portfolio ... 8
A 19 Residuals: CAPM – Loser Portfolio ... 9
A 20 Residuals: 3-Factor Model – Winner Portfolio against OSEAX ... 9
A 21 Residuals: 3-Factor Model – Winner Portfolio against Small-Minus-Big ... 10
A 22 Residuals: 3-Factor Model – Winner Portfolio against High-Minus-Low ... 10
A 23 Residuals: 3-Factor Model – Loser Portfolio against OSEAX ... 11
A 24 Residuals: 3-Factor Model – Loser Portfolio against Small-Minus-Big ... 11
A 25 Residuals: 3-Factor Model – Loser Portfolio against High-Minus-Low ... 12
A 26 Residuals: CAPM – Winner Portfolio against Time ... 12
A 27 Residuals: CAPM – Loser Portfolio against Time ... 13
A 28 Residuals: 3-Factor Model – Winner Portfolio against Time ... 13
A 29 Residuals: 3-Factor Model – Loser Portfolio against Time ... 14
A 30 Residuals: CAPM – Winner Portfolio against Lagged Residuals ... 14
A 31 Residuals: CAPM – Loser Portfolio against Lagged Residuals ... 14
A 32 Residuals: 3-Factor Model –Winner Portfolio against Lagged Residuals ... 15
A 33 Residuals: 3-Factor Model – Loser Portfolio against Lagged Residuals ... 16
Appendix VI OLS and Newey-West Comparison ... 16
A 34 OLS and Newey-West Comparison - Loser Portfolio ... 16
A 35 OLS and Newey-West Comparison - Winner Portfolio ... 16
A 36 OLS and Newey-West Comparison - Zero-Cost Portfolio ... 17