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The momentum effect: Omitted risk factors or investor behaviour? : Some evidence from the Spanish stock market

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Muga, Luis; Santamaría, Rafael

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Abstract In this paper we use generally applicable non-parametric methods in an attempt to sort out the possible sources of momentum in stock markets (behavioural theories or omitted risk factors). Specifically, we present the results of bootstrap analysis and stochastic dominance tests for the Spanish stock market. Our results from the bootstrap analysis are found to depend on the resampling method used (with or without replacement). Nevertheless, the various stochastic dominance techniques applied have led us to the same conclusion, namely, that the winner portfolio stochastically dominates the loser portfolio, which is not consistent with the general asset-pricing models developed for risk-averse investors. This suggests the interest of analysing theories that relax the unbounded rationality assumptions that support many of the classical asset pricing models.
Classification National Economy; Economic Statistics, Econometrics, Business Informatics
Free Keywords Market Efficiency; Trading Strategies; Behavioural Finance; Anomalies in prices
Document language English
Publication Year 2007
Page/Pages p. 637-650
Journal Quantitative Finance, 7 (2007) 6
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)