Returns to Buying Winners and Selling Losers

The argument put forward in this paper is that stocks listed on the Stockholm Stock Exchange, from 1993 to 2016, exhibits return continuation over an intermediate-horizon. The best performing strategy, which selects stocks based on the previous six months’ returns and holds the portfolio for three subsequent months, yields an average monthly return of 2.33%. Moreover, results are robust after risk-adjustment. The Capital Asset Pricing Model, as well as the Fama and French three-factor model, produce qualitatively incorrect predictions that losers are riskier, which consequently increases the risk-adjusted return rather than decreasing it.