Combining Value and Momentum: Evidence from the Nordic Equity Market

Abstract

This is the first paper that explores Fisher, Shah and Titman’s (2016) average ranking approach for the value and momentum strategy in the Nordic equity market offering an exceptional experimental environment. Our results indicate that in the Nordic stock markets, the value anomaly offered excess returns in the 1993 to 2017 sample period only when small stocks were a part of the portfolio, whereas the momentum effect is strong and significant, irrespective of size. Interestingly, our findings also indicate that the negative correlation between value and momentum (Asness, Moskowitz and Pedersen, 2013) seems to be driven by growth stocks: Winner stocks that are value stocks generated 1.66% per month on average, whereas winner stocks that are growth stocks exhibit virtually the same average payoff. On the other hand, the spread between value and growth stocks that are loser stocks is on average 0.97% per month.

Keywords: nordic stock markets, value, momentum, average ranking method, negative correlation

JEL Classification: G12, G14