An empirical study of serial correlation in stock returns : cause-effect relationship for excess returns from momentum trading in the Norwegian market

Brodin, Maximilian; Abusdal, Øyvind
Master thesis
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http://hdl.handle.net/11250/168153
Date
2008
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Abstract
This paper documents the maximum theoretical excess return on the market to 3.8% monthly from

momentum trading in Norway and estimates the economical excess return to be marginally higher

than 1% per month when accounting for microstructure influences. We find that the excess returns

of various momentum strategies are not explained by systematic risk or exposure to other factors

such as size or book‐to‐market value. We uncover a positive correlation between types of investor

and the degree of momentum in the market. Studying business cycles has provided evidence of

reversals following bust periods which are in‐line with behavioral theories of overreaction.