Abstract
This paper shows that momentum trading fails to generate significant profits beyond the one-month holding period on the Warsaw Stock Exchange over the years 2002-2011. Size and value strategies are efficacious but have varying magnitudes over time: Size premium diminishes in the second subperiod. Domestic, European and global pricing model specifications are challenged with strategy payoffs to test the rational explanation for the profitability of these investment styles. The performance of the buy-side of size and value strategies is captured by the market risk exposure but both single- and multi-factor models leave significant alphas of large and value portfolios. Domestic models outperform their non-domestic specifications: European CAPM performs better than its global analogue while non-domestic three-factor models perform similarly. Tail size and value portfolios are characterised by negative but mostly insignificant loadings on European and global non-market risk factors that emerge from the negative relationship between Polish, European and global currency-adjusted SMB and HML. It is further shown that after adjustment for fluctuations between USD and PLN the magnitude and correlation structure between local and global risk factors change significantly.
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