Momentum Effect in the U.S. Stock Market

The cross-sectional momentum effect has been much discussed by scholars for the past few decades. It indicates the inertia in the price dynamics observed in the mid-term perspectives. This fact contradicts the efficient market hypothesis (EMH). The presence of this effect allows to develop momentum investment strategies based on the movement of past prices and trading volumes where past losers are sold, and past winners are bought. The lack of relevant studies on the cross-sectional momentum in the U.S. stock market and their ambiguous results determine the choice of the research topic. This paper attempts to address the research gap and to investigate the profitability of the momentum strategies on the U.S. stock market (including stocks of NYSE, AMEX (NYSE MKT) and NASDAQ) during the period from January 2010 to January 2020. We perform secondary data collection and use quantitative data analysis based on the approach proposed by Jegadeesh and Titman (1993) with different strategy designs. In addition, we draw conclusions about the nature of increased profitability of momentum strategies in terms of market efficiency using various pricing models. The evidence in support of a momentum effect presented in this thesis also implies that predictable price patterns can be used to make excess returns. Thus, this study contributes to the discussion of the theory of EMH and has applied and theoretical significance.