WINNERS-ONLY MOMENTUM TRADING STRATEGY ON THE BULGARIAN STOCK EXCHANGE AD
Abstract
Momentum effect persists to draw researchers` and investors` interest for almost 30 years now, as the documented short-term return predictability continues to provide profits on various international financial markets over different asset classes. The cross-sectional or traditional momentum investment strategy includes holding both a long position in best performing stocks and a short position in poorest performing stocks over the previous up to 12 months. Thus, the winner-minus-loser-portfolio is expected to provide positive profits especially in steady state markets with an investment horizon of up to 12 months. However, some researchers claim, that in practice short selling is not applicable for individual investors due to limited expertise, the requirement for disposing of significant financial resources (to bear potential losses) and the higher riskiness of such investments. That is why, research literature suggests for individual investors to go only long on past winners, which also turns out to be profitable investment opportunity based on the documented evidence on international equity markets. Thus, the main goal of the paper is to investigate the profitability of the winners-only momentum investment strategy on the Bulgarian Stock Exchange. The empirical results indicate, that holding only a long position on previous best performing stocks on the Bulgarian equity market turns out to provide significant returns.
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