On market efficiencies on the German stock market - Evidence via the implementation of momentum strategies

Abstract: This paper investigates whether the German Stock is efficient or not, i.e. whether there is a way to systematically beat the market. Within this framework momentum strategies with formation and holding periods over 3- to 12-month horizons are applied on the CDAX. The results do not show clear signs of market inefficiencies. While momentum strategies were successful in 67% of the cases, the winner portfolio outperformed the loser portfolio over all strategies in 53% of the cases. Moreover, the results lack statistical significance in 50% of the cases meaning that these results could have occurred by chance. What remains puzzling, however, is the robustness, with which some of these strategies exhibit momentum. Firstly, the momentum returns are existent throughout every month and different sub-periods. Secondly, even controlling for risk, industry- and index-related factors could not explain the sources of momentum.