Profitability of momentum strategies in international markets: the role of business cycle variables and behavioural biases

Antonios Antoniou, Herbert Y.T. Lam, Krishna Paudyal

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48 Citations (Scopus)


The paper investigates whether business cycle variables and behavioural biases can explain the profitability of momentum trading in three major European markets. Unlike previous studies, the paper nests both risk-based and behavioural-based variables in a two-stage model specification in an attempt to explain momentum profits. The findings show that, although momentum profitability in European markets is unexplained by conditional asset pricing models, it is attributable to asset mispricing that systematically varies with global business conditions. In addition, behavioural variables do not appear to matter much. Thus risk factors, which are undetected thus far and are largely attributable to the business cycle, could explain the momentum payoffs in European stock markets.

Original languageEnglish
Pages (from-to)955-972
Number of pages18
JournalJournal of Banking and Finance
Issue number3
Publication statusPublished - 31 Mar 2007



  • business cycle
  • investors' behaviour
  • momentum trading

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