Momentum anomaly in the Finnish stock market and banking stocks during the financial crises

Abstract

The purpose of this study is to examine whether the momentum anomaly exists and the momentum strategies profit in the Finnish stock market and banking stocks during the financial crises. In the momentum strategies of this paper the stocks are ranked into winner and loser portfolios in the beginning of each month according to their past six month performance and then held for 3, 6, 9 and 12 months. The effect of the two different crisis periods are evaluated and compared to the whole sample period. The short term price continuation profits are contradictory to the efficient market hypothesis and a result of the behavioral biases.

The data sample includes daily returns of the stocks listed in the Helsinki stock exchange and the OMXH Benchmark index daily returns. The sample period of the beginning of 2000 till the end of 2010 includes two different crises periods, the IT-bubble and the financial crisis, that are interesting and unique research scenarios.

The results show that the momentum strategies outperform the market returns in the Finnish stock market, excluding the banking sector. The highest profits are achieved with the 3-months holding period strategy in all sample periods. The effect of the financial crises is strongest in the 3-month strategy and the momentum profits are higher during the crises periods. The negative loser portfolio seems to have strong effect on momentum returns especially during the crises. The study suggests that the momentum profits and the strongly negative loser portfolio are signs of investors’ biased behavior, which was emphasized during the crises periods.