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Trade momentum

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  • Rizova, Savina

Abstract

This paper shows that although stock market movements of a country's trading partners contain information about future trade flows with those partners, the stock market of the country does not react immediately and fully to the partners’ stock market movements. Stock market returns of a country's major trading partners forecast the subsequent stock market return of that country. Strategies based on trade momentum yield monthly alphas of over 120 basis points. Trade momentum appears consistent with gradual information diffusion.

Suggested Citation

  • Rizova, Savina, 2013. "Trade momentum," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 24(C), pages 258-293.
  • Handle: RePEc:eee:intfin:v:24:y:2013:i:c:p:258-293
    DOI: 10.1016/j.intfin.2012.11.008
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Nyberg, Henri & Pönkä, Harri, 2016. "International sign predictability of stock returns: The role of the United States," Economic Modelling, Elsevier, vol. 58(C), pages 323-338.
    2. Harri Pönkä, 2017. "Predicting the direction of US stock markets using industry returns," Empirical Economics, Springer, vol. 52(4), pages 1451-1480, June.
    3. Sarwar, Ghulam, 2014. "U.S. stock market uncertainty and cross-market European stock returns," Journal of Multinational Financial Management, Elsevier, vol. 28(C), pages 1-14.

    More about this item

    Keywords

    Cross-country return predictability; Trade flows; Efficient markets hypothesis; Gradual; Information diffusion;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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