Profitability of Momentum Strategies on the Eurozone Market

Abstract: This paper investigates the profitability of the zero-cost strategies (Winner-Loser) on the Eurozone market for the time period 1999-2009. We find that the Winner portfolio outperforms the Loser portfolio by, on average, 0,8% per month when we combine formation and holding periods of 3, 6, 9 and 12 months. As the sum of these two periods gets closer to 24 months, the excess returns tend to dissipate. The momentum profits are consistent throughout the different sub-periods analyzed. The current financial crisis does not diminish these profits, as it affects the Losers more dramatically than the Winners. We observe the return continuation phenomenon across most of the countries and industries included in our study. Controlling for these two factors leads to a small decrease of our profits in the case of a country-neutral portfolio and to a more significant decrease for an industry-neutral portfolio, which indicates towards the industry factor as being responsible, to a small extent, for the existence of the momentum profits. Adjusting for systematic risk, size and value factors increases the excess returns and suggests that these factors cannot explain the abnormal profits.