Momentum in the Irish stock market

Abstract

This article is the first to study momentum trading strategies in the Irish stock market. The findings can be summarized as follows: (i) unconditional momentum trading strategies do not outperform the market, (ii) winner and loser trading strategies do outperform the market and (iii) controlling for heteroscedasticity significantly changes the results and yields positive and significant excess returns for most of the 16 momentum trading strategies analysed. These findings illustrate that investors can persistently earn excess returns in the Irish stock market.

Notes

¹IEX is a market designed primarily for small- to mid-sized companies to which a higher investment risk tends to be attached, rather than larger or more established companies. These stocks have been excluded because the securities admitted to IEX are subject to the IEX rules and not the listing rules for officially listed companies, which may effect the implementation of the trading strategies.

²Additional information can be obtained from the website of the Irish stock exchange at http://www.ise.ie.

³Quintile or decile portfolios are not considered due to the relatively small number of firms in the sample compared with other studies (Jegadeesh and Titman, 2001).

⁴The three-factor Fama–French model is not considered since the factors are only available for the US stock market but not for the Irish stock market.

⁵It is important to note that while the strategy may have significant positive excess returns, it does not necessarily mean it will generate actual positive returns. This is because the positive significant returns measure how the strategy outperforms the market. In this scenario, when the ISEQ Overall Index is falling in value quite dramatically, a return of 3% above the ISEQ Overall Index may not result in the strategy's closing position generating an actual positive return.

⁶Full results can be obtained from the authors upon request.