Following the trend? : Using a time series momentum strategy on the Swedish stock market

Abstract: The momentum strategy can be divided into two different sections where this study has focused on a time series momentum strategy where assets that in the previous period will continue in the same trend the following period. This theory stands in opposition to the efficient market hypothesis which in its weakest market form says that all previous market data is already incorporated in the price the asset is selling for today, and by that, it cannot be used to make abnormal profits. The study was conducted by creating three different portfolios redistributed at different times and comparing the return and risk compared to the OMXS30 index. The results from the study were inconclusive since it did not find a significant statistical difference between the cumulated returns for the portfolios created using the momentum strategy and the OMXS30 index, and therefore the results are more in line with the efficient market hypothesis. Still, all the portfolios produced a higher cumulative return than the index but were also subject to higher risk measured as standard deviation. By using the Sharpe-ratio as a performance measure for what portfolio had the highest risk-adjusted return, the results showed that the portfolio redistributed once every year had the highest riskadjusted return and would be the most interesting for an investor to invest in.