Country Stock Market Anomaly Momentum

Do country stock market anomalies have trends? In his March 2018 paper entitled “The Momentum Effect in Country-Level Stock Market Anomalies”, Adam Zaremba investigates whether country-level stock market return anomalies exhibit trends (momentum) based on their past returns. Specifically, he:

• Screens potential anomalies via monthly reformed hedge portfolios that long (short) the equal-weighted or capitalization-weighted fifth of country stock market indexes with the highest (lowest) expected gross returns based on one of 40 market-level characteristics/combinations of characteristics. Characteristics span aggregate market value, momentum, reversal, skewness, quality, volatility, liquidity, net stock issuance and seasonality metrics.
• Tests whether the most reliable anomalies exhibit trends (momentum) based on their respective returns over the past 3, 6, 9 or 12 months.
• Compares performance of a portfolio that is long the third of reliable anomalies with the highest past returns to that of a portfolio that is long the equal-weighted combination of all reliable anomalies.

He performs all calculations twice, accounting in a second iteration for effects of taxes on dividends across countries. Using returns for capitalization-weighted country stock market indexes and data required for the 40 anomaly hedge portfolios as available across 78 country markets during January 1995 through May 2015, he finds that: (more…)