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Time Series Momentum in the 2000s: Evidence from the European Equity Market

ФИО студента: Salvatore Ingenito

Руководитель: Darko Vukovic

Кампус/факультет: St.Petersburg School of Economics and Management

Программа: Finance (Master)

Оценка: 10

Год защиты: 2021

Time series momentum (TSM) is a tactical asset allocation phenomenon that seems to hardly challenge the Efficient Market Hypothesis (EMH). Since its first documentation in 2012, TSM has been widely investigated across different asset classes and financial markets. This study, by focusing on the European equity market throughout the 20 years of the 2000s, aims at producing additional evidence on TSM to assess whether it is a significant and persistent market price anomaly that enables investors to earn abnormal returns. In order to do that, it is implemented a pooled autoregressive model to test the predictability power of European equity indices’ own past returns of future returns. On the ground of the positive and significant coefficients of the 1 to 12 monthly return lags, it is structured and backtested a TSM strategy in order to enhance portfolios’ alpha: the idea is to take a long position (short) if the return over the lookback period, i.e., the past 1-to-12 months, is positive (negative), hold it for one month and then close the position immediately after. It turns that, strategies based on TSM logic are not only highly attractive in mean-variance terms but also enable market agents to earn returns over and above the market (0.71% per month) without loading on it as well as on the Fama French 5 factors.

Full text (added August 13, 2021)

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