Seasonalities in the German stock market

Abstract

This paper suggests innovative investment strategies drawing on return seasonalities. By means of an out-of-sample study of the German stock market, we report that these long–short investment strategies earn on average raw returns up to 233 basis points per month throughout two decades from 1998 to 2017. On a monthly basis, this documents an outperformance of the corresponding Heston and Sadka (J Financ Econ 87(2):418–445, 2008) strategy by 66%. This outperformance is robust in magnitude even after adjusting for common risk factors along both the three-factor Fama and French (J Financ Econ 33(1):3–56, 1993) model and the four-factor Carhart (J Finance 52(1):57–82, 1997) model. Categorizing stocks into three risk profiles lets us conclude that long–short momentum portfolios of stocks with a low-risk profile generate robust investment performance.

Evidences and Explanations for the Momentum Effect in the World: A Literature Review

“…Boussaidi and Dridi [2] showed that the momentum strategy caused huge profits from December 1999 to January 2016 in Tunisian stock market: selling short the loser portfolios and buying winner ones could earn significant profit in 14 out of 16 strategies. According to Hofmann and Keiber [6], based on the data analysis for the stocks listed on the Frankfurt Stock Exchange from January 1978 to December 2017, the decile spread portfolio earned an excess return of 233 basis points per month, which means the 12-month traditional momentum strategies can successfully predict the performance of stocks (Table 1). In Australia, it was also investigated that S&P/ASX200 Index earned 9.51% per annum using momentum strategy in the sample period from January 2001 to December 2010 [5] (Table 1).…”

“…Jegadeesh and Titman first discovered the momentum effect in the US market [1]. After that, many scientists have proved that momentum effect could obtain effective benefits in the markets of Europe, America, Australia, etc [2][3][4][5][6]. But others have found some different phenomena.…”