Momentum strategy assumes that the quotations of securities tend to continue positive or negative tendencies of development over a medium-term horizon. In its different versions, the strategy recommends to sell stocks that have performed worst ("losers") and to buy stock that have performed best ("winners") during last 3-12 months prior to assets allocation. Portfolios constructed in such a way should be then held for another 3-12 months.

This paper documents profitability of 16 versions of momentum strategy at the Warsaw Stock Exchange in the period since October 1994 till the end of September 2005. The most profitable strategy would be to construct a portfolio of long and short positions based on the observation period of three recent quarters and to hold such a portfolio for the next quarter. Consequently, this investment rule would generate (before transaction costs) an average quarterly return of 9.25%, however a big portion of this profit (7.17%) would come from short positions. Restrictions of short selling and transaction costs are crucial limitations for this strategy.

The paper starts with a literature review, particularly focused on a discussion about possible sources of momentum profits. It continues with the methodology, data description, and presentation of results of the research on the Polish capital market. The paper concludes with a summary and postulates for further research in this field.

Keywords: momentum, market efficiency, behavioral finance, market anomalies, emerging markets, Warsaw Stock Exchange..

  Adam Szyszka, Momentum at the Warsaw Stock Exchange - plik pdf; (124 KB)