Momentum Investment Strategy : (An Empirical Study of the Canadian Stock Market and the Swedish Stock Market)

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AbstractMarket efficiency is a highly debated topic within the academic research field of finance.Several studies have presented that the return on stocks may be predictable by employing themomentum investment strategy, which contradicts the Efficient Market Hypothesis inexchange market. There is extensive international evidence, on an academic level that themomentum investment strategy yields positive abnormal returns when short-term periods areconsidered. This paper examines the profitability of the momentum investment strategy inCanadian and Swedish stock markets during January 2000 to December 2006. To investigatethe strategy, two separate portfolios of winners and losers, each portfolio containing 50stocks, are created for each market. Then the momentum strategy, which consists in longposition in past best performing stocks and short positions in past worst performing stocks, isrun for each exchange market. Results show that the strategy generates statistical significanceat the 5% level for Canadian market for 9-month holding period, and with the level ofsignificance at the 10% for Swedish market for the 6 and 9-month holding periods afterexcluding the data for the year 2002. Moreover, results show that the strategy is even stronge...