The 52-week high momentum in the Finnish stock market

Abstract

Previous research has shown that in many international stock markets, a readily available piece of information - the 52-week high price - when divided by the stock’s current price, explains a major portion of momentum investing profits. However, no thorough research has been made on the subject in the Finnish stock market. I use monthly data from 01/1998 to 09/2019 to examine how the 52-week high momentum investment strategy compares to individual stock and industry momentum strategies in the market, and whether the returns from the strategy experience short- or long-term reversals.

My results show that the 52-week high momentum strategy produces significant positive returns in the Finnish stock market when a holding period of 6 months is used, and that those returns are even higher when the returns in Januaries are excluded. However, despite its high profitability, the strategy is still outperformed by the individual stock momentum when returns in all calendar months are taken into account. The evidence also suggests that the 52-week high does not have more predictive power over future stock returns than the past individual stock returns when Januaries are included, although it clearly has more than the past industry returns. There is no clear evidence of short-term reversals for the 52-week high momentum strategy, but the overall returns produced by the strategy reverse in the long run when returns in all calendar months are taken into account. However, when Januaries are excluded, the 52-week high returns persist in the long run, which presents a challenge to current theories that predict long-term reversals for stock returns and suggest that momentum and long-term reversals are associated with the same phenomenon.