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

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.