Momentum - Trendspotting in the Swedish Stock Market

Abstract: We set out to investigate the presence of momentum in the Swedish stock market in an attempt to distinguish whether the market displays the weak- and the semi-strong form of efficiency. Adopting a strategy similar to that of Jegadeesh and Titman (1993) and (2001), where past winners are bought and past loser are sold, we are able to show that momentum indeed is present, earning approximately 1 percent per month at a medium-term investment horizon. When investigating the sources of the momentum profits we find that neither the CAPM nor the Fama and French three-factor model are sufficient in explaining this phenomenon. After establishing that these profits were robust to these risk factors, we used the momentum factor in order to estimate the Carhart (1997) four-factor model. Comparing it to the three-factor model, we find that the momentum factor is significant and might be helpful in explaining variations in stock return.