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The momentum effect: omitted risk factors or investor behaviour? Evidence from the Spanish stock market

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  • Luis Muga
  • Rafael Santamaria

Abstract

In this paper we use generally applicable non-parametric methods in an attempt to sort out the possible sources of momentum in stock markets (behavioural theories or omitted risk factors). Specifically, we present the results of bootstrap analysis and stochastic dominance tests for the Spanish stock market. Our results from the bootstrap analysis are found to depend on the resampling method used (with or without replacement). Nevertheless, the various stochastic dominance techniques applied lead us to the same conclusion, namely that the winner portfolio stochastically dominates the loser portfolio, which is not consistent with the general asset-pricing models developed for risk-averse investors. This promotes interest in analysing theories that relax the unbounded rationality assumptions that support many of the classical asset-pricing models.

Suggested Citation

  • Luis Muga & Rafael Santamaria, 2007. "The momentum effect: omitted risk factors or investor behaviour? Evidence from the Spanish stock market," Quantitative Finance, Taylor & Francis Journals, vol. 7(6), pages 637-650.
    • Handle: RePEc:taf:quantf:v:7:y:2007:i:6:p:637-650
    DOI: 10.1080/14697680601077975
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    Cited by:

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    3. Trabelsi, Mohamed Ali, 2010. "Sélection de portefeuille via la stratégie de sur-réaction [Portfolio selection via the overreaction strategy]," MPRA Paper 81472, University Library of Munich, Germany, revised 2010.
    4. Minh Phuong Doan & Vitali Alexeev & Robert Brooks, 2016. "Concurrent momentum and contrarian strategies in the Australian stock market," Australian Journal of Management, Australian School of Business, vol. 41(1), pages 77-106, February.

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