The Research of Momentum Effect in Dynamics of Stock Market Prices of Developing Countries

This paper examines the medium-term performance of investment strategy based on the cross-sectional momentum effect in emerging and developed capital markets during the period from January 2010 to November 2017. The data consists of monthly closing share prices of the companies operating in capital markets of USA, Russia, Brazil, Mexico and Poland. The results indicate the absence of momentum effect for all emerging capital markets and the presence of significantly positive abnormal returns of medium-term investment strategy for US stock market. The comparative analysis of results obtained for emerging capital markets indicates the presence of negative economic and political pressure on Russian and Brazil stock markets during considered period weakening the momentum effect. The relative sustainability of results for Polish and Mexican capital markets is explained by geographical proximity to economic giants such as US and German markets. The results for various countries have been adjusted for specificities in systematic risks, and transaction costs. Obtaining the corresponding outcomes for emerging markets is inconsistent with recent studies due to the choice of different research timeframe. Generally, the findings of the paper illustrate the truthfulness of the Efficient Market Hypothesis (EMH) and demonstrate the failure of investment strategy based on cross-sectional momentum effect. Key words: cross-sectional momentum effect, formation period, investment period, contrarian effect, systematic abnormal returns