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Time-Series Momentum in a Small European Stock Market: Evidence from a New Historical Financial Dataset

Author

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  • Júlio Lobão

    (School of Economics and Management, University of Porto, Portugal)

  • Ana Rosário

    (School of Economics and Management, University of Porto, Portugal)

Abstract

In this paper, we examine the Portuguese stock market for indication of time-series momentum effects using a new historical financial dataset that covers about 120 years of data. We find strong time-series momentum effects that cannot be explained by conventional risk factors. The positive return continuation seems to last for a period of 12 months, being heavily concentrated at the first month. At longer investment horizons, returns tend to mean-revert. The market exhibited significant time-series momentum for all look-back and holding periods of 12 months or less. A strategy with a 1-month look-back period and a 12-month holding period is shown to be the most profitable yielding a Sharpe ratio roughly 5.4 times that generated by a passive strategy. Time-series momentum strategies tend to perform best during extreme up-market periods and deliver the worst returns during down markets. This suggests that the strategy may not offer significant diversification benefits. Our findings add to the evidence that time-series momentum effects are not a product of data mining and are difficult to reconcile with the assertion that stock markets follow a random walk.

Suggested Citation

  • Júlio Lobão & Ana Rosário, 2023. "Time-Series Momentum in a Small European Stock Market: Evidence from a New Historical Financial Dataset," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 70(3), pages 335-352, September.
    • Handle: RePEc:aic:saebjn:v:70:y:2023:i:3:p:335-352:n:1
    DOI: 10.47743/saeb-2023-0021
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