Momentum in Nordic Stock Returns : Industry Effects and Possible Strategy Improvements
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- Master Thesis 
This thesis documents a strong momentum effect in the Nordic stock market that does not seem to be explained by traditional risk factors or industry effects, in contrast to the findings of Moskowitz and Grinblatt (1999). Specifically, the winner-minus-loser (WML) strategy on both the individual stock- and industry level is significantly profitable alone, but only individual stock momentum remains significant when controlling for the other. This indicates that the individual stock WML strategy is not as poorly diversified as initially thought and that the identified industry dependency in the United States may be country-specific. Having established that industry effects do not explain the momentum in Nordic stock returns, I explore momentum crashes as another possible explanation. The WML strategies are found to suffer from severe drawdowns in the sample period, making them unappealing to investors with reasonable risk-aversion. The explored combinations of momentum and value reduce crash risk and improve risk-adjusted returns significantly. In conclusion, the combination of momentum and value is a much bigger puzzle than either anomaly alone.