Reversal and momentum effects in the Finnish and Swedish stock markets

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bachelor_Kovanen_Tuomas_2023.pdf (420.95 KB)
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School of Business | Bachelor's thesis
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Date
2023
Major/Subject
Mcode
Degree programme
Rahoitus
Language
en
Pages
21 + 1
Series
Abstract
This paper examines the relationship between stocks’ returns and their recent performance in Finland and Sweden from 2000 to 2022. I rank stocks based on their performance in the past using different time periods and sort them into portfolios to see if stocks with the highest returns will outperform the stocks with the lowest returns or vice versa. I find that when stocks are sorted based on their return in previous month, past losers generate significant abnormal returns over past winners implying that the short-term reversal effect exists. I find that when portfolios have longer formation periods, strategies that buy past losers and sell past winners or buy past winners and sell past losers, do not generate significant abnormal returns. This suggest that the momentum effect and the long-term reversal effect are not apparent in the Finnish and Swedish stock markets.
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Thesis advisor
Lof, Matthijs
Keywords
momentum, reversal, contrarian, overreaction, underreaction, abnormal returns
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