Combining low-volatility and momentum : recent evidence from the Nordic equities

Abstract

This paper investigates the profitability of combined low-volatility and momentum investment strategies in the Nordic stock markets from January 1999 to September 2022. Confirming earlier studies, our results first indicate that both the volatility and momentum effects persist as pure-play strategies. Further, we explore combined strategies using 50/50, double screening, and ranking strategies. Among the long-only portfolios, the momentum-first strategy generates the best Sharpe ratio using the double screening method−slightly outperforming the ranking method. Additionally, all long-only combination portfolios outperform the market in terms of risk-adjusted returns. Combination long-short strategies produce significantly higher risk-adjusted returns than pure-play strategies. Surprisingly, novel evidence suggests that none of the combination long-short strategies outperforms the pure momentum strategy after risk-adjusting the returns using the Fama and French five-factor model, implying that while momentum may enhance the returns from the low-volatility strategy, the reverse is not true for the Nordic stock markets.