Do country characteristics influence the momentum effect? A recent study on the momentum effect around the globe

Abstract

Where some researchers are convinced of the momentum effect, others are determent that it is the result of the January effect, data mining or driven by risk. This paper displays momentum returns in different countries and tests the impact of different macroeconomic variables on these returns. The three important variables that are tested are the financial system, legal system and the religion of a nation. The momentum effect is measured by 8 different momentum strategies and measured two times a year, in January and July. This study uses formation periods of 3 and 9 months and holding periods with an equal number of months. The momentum anomaly is most present in European countries but this study does not state a clear relationship between the macroeconomic variables and momentum. However, it does give some fresh insights into the anomaly.