Revisiting momentum strategies: is the Brazilian market really an exception?

Abstract

ABSTRACT This paper revisits the momentum strategies aiming to verify if the absence of evidence regarding profitability in the Brazilian market can be related to the crashes that such strategies experience during crises, as reported by Daniel and Moskowitz. In this effort, we used the t-student test to compare the average returns earned by the momentum portfolio during and outside the financial crises between January, 1997 and March, 2014. The results demonstrate that, according to the reported for other markets, the portfolio crashes during crises while it earns positive and significant returns in other periods, even after a control for CAPM and Fama-French risk factors. These findings indicate that the absence of evidence regarding these strategies does not imply in the understanding of Brazilian market as being an exception, but can be explained by momentum portfolio crashes during crises, which partially cancel the profits obtained by this strategy in other periods.