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Do Countries or Industries Explain Momentum in Europe?

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Author Info

  • Nijman, T.E.
  • Swinkels, L.A.P.
  • Verbeek, M.J.C.M.

    (Tilburg University, Center for Economic Research)

Abstract

The driving force behind the well-documented medium term momentumeffect in stock returns is subject of much debate. Empirical papersthat aim to find the determinants of this return continuation, seem tobe almost exclusively restricted to US stock markets. Consequently,regional effects have received little attention in these analyses.This paper contributes to the discussion by investigating the presenceof country and industry momentum in Europe and addressing the questionwhether individual stock momentum is subsumed by country or industrymomentum.We examine these issues by introducing a portfolio-basedregression approach, which allows to test hypotheses about theexistence and relative importance of multiple effects using standardstatistical techniques. While the traditional sorting techniques arenot suited to disentangle a multitude of possibly interrelated effects(e.g. momentum, value, and size), our method can be used even whenonly a moderate number of stocks are available. Our results suggestthat the positive expected excess returns of momentum strategies inEuropean stock markets are primarily driven by individual stockseffects, while industry momentum plays a less important role andcountry momentum is even weaker. These results are robust to theinclusion of value and size effects.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2002-9.

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Date of creation: 2002
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Handle: RePEc:dgr:kubcen:20029

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Web page: http://center.uvt.nl

Related research

Keywords: country risk; industry risk; momentum effect; portfolio selection; return on inverstment; portfolio investment; risk;

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References

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  1. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June.
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Cited by:
  1. Bettman, Jenni L. & Maher, Thomas R.B. & Sault, Stephen J., 2009. "Momentum profits in the Australian equity market: A matched firm approach," Pacific-Basin Finance Journal, Elsevier, vol. 17(5), pages 565-579, November.
  2. De Bondt, Werner & Palm, Franz & Wolff, Christian, 2004. "Introduction to the special issue on behavioral finance," Journal of Empirical Finance, Elsevier, vol. 11(4), pages 423-427, September.
  3. Philip A. Stork, 2011. "The intertemporal mechanics of European stock price momentum," Studies in Economics and Finance, Emerald Group Publishing, vol. 28(3), pages 217-232, August.
  4. Gupta, Kartick & Locke, Stuart & Scrimgeour, Frank, 2010. "International comparison of returns from conventional, industrial and 52-week high momentum strategies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(4), pages 423-435, October.
  5. Huij, Joop & Post, Thierry, 2011. "On the performance of emerging market equity mutual funds," Emerging Markets Review, Elsevier, vol. 12(3), pages 238-249, September.
  6. Liu, Ming & Liu, Qianqiu & Ma, Tongshu, 2011. "The 52-week high momentum strategy in international stock markets," Journal of International Money and Finance, Elsevier, vol. 30(1), pages 180-204, February.
  7. Nielsen, Caren Yinxia Guo, 2011. "Is Default Risk Priced in Equity Returns?," Working Papers 2011:38, Lund University, Department of Economics.
  8. Pavlov, Borislav & Bauer, Rob & Schotman, P., 2004. "Individual effects and sector effects in a panel data model for predicting stock returns," Open Access publications from Maastricht University urn:nbn:nl:ui:27-6101, Maastricht University.
  9. Huij, Joop & Derwall, Jeroen, 2011. "Global equity fund performance, portfolio concentration, and the fundamental law of active management," Journal of Banking & Finance, Elsevier, vol. 35(1), pages 155-165, January.

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