A STUDY ON THE MOMENTUM EFFECT FOR THE BULGARIAN STOCK EXCHANGE: SOME PRACTICAL ISSUES OF APPLIED IMPORTANCE
Keywords:
(Bulgarian Stock Exchange, momentum effect, short-term return predictability, Global financial crisis 2008, )
Abstract
The momentum effect has been studied for almost three decades. It indicates the presence of return predictability patterns on financial markets, which contradicts to the Efficient Market Hypothesis. Best (worst) past securities over the short-term tend to continue to perform well (poorly) over the subsequent period of up to 12 months. This paper examines the profitability of momentum trading strategies on the Bulgarian Stock exchange. To achieve our goal, we apply an adjusted data preparation approach to reflect the characteristics of the BSE like poor liquidity and missing data. Over our sample Jan-2004 to Jul-2017 we do not find enough evidence for momentum profits. Accounting for the financial crisis, we divide our sample into three subsamples. During the pre-crisis period (Jan-2004 to Dec-2007) we find significant momentum profits and return predictability. During the subsequent crisis period from Jan-2008 to Dec-2012 momentum effects disappears, whereas it does not reappear during the post-crisis period from Jan-2013 to Jul-2017. The latter indicates, that the BSE is still undergoing the consequences of the severe market downturn.References
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2. Alphonse, P. & Nguyen, T. H., 2013. Momentum Effect: Evidence from the Vietnamese Stock Market. Asian Journal of Finance & Accounting, 5(2), pp. 183-202.
3. Angelov, I., 2009. Global Economic Crisis and Bulgaria. UNWE Yearbook, pp. 3-68.
4. Asness, C. S., 2016. Fama on Momentum. [Online]
Available at: https://www.aqr.com/cliffs-perspective/fama-on-momentum
[Accessed: 31 July 2017].
5. Asness, C. S., Moskowitz, T. J. & Pedersen, L. h., 2013. Value and Momentum Everywhere. The Journal of Finance, 68(3), pp. 929-985.
6. Bird, R., Gao, X. & Yeung, D., 2017. Time-series and cross-sectional momentum strategies under alternative implementation strategies. Australian Journal of Management, 42(2), pp. 230-251.
7. Bogdanova, B. & Ivanov, I. 2015. A wavelet-based approach to the analysis and modelling of financial time series exhibiting strong long-range dependence: the case of Southeast Europe. Journal of Applied Statistics, 43(4), pp. 655-673.
8. Cakici, N., Fabozzi, F. J. & Tan, S., 2013. Size, Value, and Momentum in Emerging Market Stock Returns. Emerging Markets Review, 16, pp. 46-65.
9. Chabot, B., Ghysels, E. & Jagannathan, R., 2014. Momentum Trading, Return Chasing, and Predictable Crashes. Issue WP 2014-27.
10. Chui, A. C. W., Titman, S. & Wei, J. K. C., 2010. Individualism and Momentum around the World. The Journal of Finance, 65(1), pp. 361-392.
11. Daniel, K. & Moskowitz, T. J., 2016. Momentum crashes. Journal of Financial Economics, 122(2), pp. 221-247.
12. Foltice, B. & Langer, T., 2015. Profitable momentum trading strategies for individual investors. Financial Markets and Portfolio Management, 29(2), pp. 85-113.
13. Grundy, B. D. & Martin, J. S., 2001. Understanding the Nature of the Risks and the Source of the Rewards to Momentum Investing. The Review of Financial Studies, 14(1), pp. 29-78.
14. Holton, G. A., 2014. Value-at-Risk: Theory and Practice. Second edition. [Online]
E-book published by the author available at: www.value-at-risk.net
[Accessed: 10 August 2017].
15. Ivanov, I., Lomev, B. & Bogdanova, B., 2012. Investigation of the market efficiency of emerging stock markets in the East-European region. International Journal of Applied Operational Research, 2(2), pp. 13-24.
16. Jagadeesh, N. & Titman, S., 1993. Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency. The Journal of Finance, 48(1), pp. 65-91.
17. Jegadeesh, N., 1990. Evidence of Predictable Behavior of Security Returns. The Journal of Finance, 45(3), pp. 881-898.
18. Jegadeesh, N. & Titman, S., 2011. Momentum. Annual Review of Financial Economics, 3, pp. 493-509.
19. Kenourgios, D. & Samitas, A., 2011. Equity market integration in emerging Balkan markets. Research in International Business and Finance, 25(3), pp. 296-307.
20. Lazarov, D., 2013. Simulations with missing values. Vanguard Scientific Instruments in Management, 7(2), pp. 10-46.
21. Lehmann, B. N., 1990. Fads, Martingales, and Market Efficiency. The Quarterly Journal of Economics, 105, pp. 1-28.
22. Menkhoff, L., Sarno, L., Schmeling, M. & Schrimpf, A., 2012. Carry Trades and Global Foreign Exchange Volatility. The Journal of Finance, pp. 681-718.
23. Moskowitz, T. J. & Grinblatt, M., 1999. Do Industries Explain Momentum?. The Journal of Finance, 54(4), pp. 1249-1290.
24. Muga, L. & Santamaria, R., 2007. The Momentum Effect in Latin American Emerging Markets. Emerging Markets Finance & Trade, 43(4), pp. 22-45.
25. Narayan, P. K., Ahmed, H. J. A. & Narayan, S., 2015. Do Momentum-Based Trading Strategies Work in the Commodity Futures Markets?. Journal of Futures Markets, 35(9), pp. 795-891.
26. Rouwenhorst, G. K., 1998. International Momentum Strategies. The Journal of Finance, 53(1), pp. 267-284.
27. Елана Трейдинг, 2017. Условия за търговия. [Онлайн]
Available at: https://bgtrader.elana.net/bg/uslovia-za-tqrgovia/#menu-1
[Отваряно на 29 Октомври 2017].
28. Милева, Й., 2014. Състояние и проблеми в търговията на БФБ-София АД в условията на финансова криза. Списание за наука „Ново знание”, 3(3), pp. 49-54.
Published
2020-01-31
How to Cite
Nedev, B., & Bogdanova, B. (2020). A STUDY ON THE MOMENTUM EFFECT FOR THE BULGARIAN STOCK EXCHANGE: SOME PRACTICAL ISSUES OF APPLIED IMPORTANCE. Vanguard Scientific Instruments in Management, 13. Retrieved from https://vsim-journal.info/index.php?journal=vsim&page=article&op=view&path[]=143
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Articles
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