Momentum meets value investing in a small European market

Júlio Lobão () and Marcos Azeredo ()
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Júlio Lobão: University of Porto
Marcos Azeredo: University of Porto

Portuguese Economic Journal, 2018, vol. 17, issue 1, No 2, 45-58

Abstract: Abstract In this paper, we investigate two prominent market anomalies documented in the finance literature – the momentum effect and value-growth effect. We conduct an out-of-sample test to the link between these two anomalies recurring to a sample of Portuguese stocks during the period 1988–2015. We find that the momentum of value and growth stocks is significantly different: growth stocks exhibit a much larger momentum than value stocks. A combined value and momentum strategy can generate statistically significant excess annual returns of 10.8%. These findings persist across several holding periods up to a year. Moreover, we show that macroeconomic variables fail to explain value and momentum of individual and combined returns. Collectively, our results contradict market efficiency at the weak form and pose a challenge to existing asset pricing theories.

Keywords: Value-growth effect; Momentum effect; Macroeconomic factors; Stock market; Portugal; Codes: G11; G12; G14; G15 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10258-017-0132-2

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