Time-series momentum across borders : a study of price TSM in 21 countries

Abstract

This thesis investigates if a simple technical trading signal, based on absolute price momentum, will realize higher pro ts across market equity portfolios from 21 different countries. By looking at if the current price (Pt) exceeds a historic price (Pt-k) it determines if an investor is long in the market portfolio or a risk-free asset, the strategy is there for "long only". Hypothesis testing is conducted to find the optimal look-back period and linear regression based on the the Index-model is used to evaluate the size and validity of potential excess return. The results are encouraging, a time-series momentum trading strategy will yield better risk-adjusted returns (higher Sharpe-ratio) than the market portfolio in 16 of the 21 countries tested. The results for excessive return based on the Index-model are encouraging with positive statistically significant alphas in 15 of the 16 countries where momentum also is signi cant. Several potential sources of the momentum anomaly and different strategies discussed in relevant literature is also included.