Kauppatieteellinen tiedekunta, 2002
Laskentatoimen ja rahoituksen laitos
Laskentatoimi ja rahoitus
Yrityksen rahoituksen linja
Purpose of this thesis is to find out whether momentum phenomenon exists in Helsinki Stock Exchange (HSE). Further it is studied, if momentum phenomenon is found, whether firm size or market risk can explain this phenomenon in Helsinki Stock Exchange.
Data used in this thesis consists of the daily return history from main list of HSE from 1991 until 2000. To get firm size figures, end of the calendar year listings of stocks’ values and avail-able amount of stocks in the markets are used. Helibor/euribor rates are used to calculate the excess return over the risk free return. The returns on portfolios are regressed on the daily re-turns on the HSE Portfolio index.
Methods used in this study are the following. First the return history of stocks listed in HSE from 1991 to 2000 are studied. Stocks are ranked according to their return history from last 3, 6, 12 months in to eight or ten different portfolios. The portfolios are formed by using a buy-and-hold
-strategy. Returns to these portfolios are calculated for the next 3, 6, 12 months after the forma-tion. Statistical testing is done to find out, if abnormal returns exist. Risk adjustment to momen-tum portfolios is done using the market model. Size adjustment is made by utilizing Fama & French (1996) SMB.
The results of this thesis suggest that momentum phenomenon is existent in HSE in the period of 1991 until 2000. The results are statistically robust when a six-month portfolio formation and holding periods are applied. Risk adjustment cannot explain momentum, but after adjusting for firm size the momentum phenomenon disappears. Further it is found that there is a strong corre-lation between firm size and momentum returns and in contrary to international findings large capitalization firms have performed better that small capitalization firms. Finally it is found that the sell side rather than the buy side of the momentum strategy is the strong contributor to the momentum phenomenon.
momentum strategy, price continuation, size effect, Helsinki stock exchange, efficient market hypothesis