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

Luis Muga and Rafael Santamaria

Quantitative Finance, 2007, vol. 7, issue 6, 637-650

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.

Keywords: Market efficiency; Behavioural finance; Empirical asset pricing; Anomalies in prices (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (6)

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DOI: 10.1080/14697680601077975

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