Another look at momentum crashes: momentum in the European Monetary Union

Abstract

This article studies the profitability of a selection of prominent momentum-based strategies in the European Monetary Union (EMU). In contrast to past examples documenting the lack of profitability of unconditional price momentum in the most recent decade, the current research finds that unconditional price momentum yielded significant positive payoffs. There is evidence of option-like behaviour for strategies based on intermediate past performance. Surprisingly, there is no such evidence for the momentum strategy based on recent past performance.

KEYWORDS:

• European monetary union
• market integration
• momentum crash
• European stocks
• sovereign European debt crisis
• financial crisis

JEL classification:

• G12
• G14

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ I am grateful to an anonymous reviewer for the suggestion to select one major European country and accessing stock return data for a population of that country’s individual common stocks.

² The DAX 30 is the leading stock index in Germany consisting of 30 blue-chips.

³ For compounding the ex ante bear market and contemporaneous up-market indicator, I employed the market factor for the eurozone downloaded from Kenneth French’s website.