Momentum anomaly in the Dutch

In this paper the Dutch stock market from 1973-2010 is examined for the existence of the momentum anomaly. Indeed a strategy that shortsells past losers and buys past winners earns significant excess return. The 12 month formation and 3 months holding specification yields 1.79% monthly. Especially the loser portfolio is disproportionally weighted towards small firms, hence transaction costs can be substantial. However there are still profitable specifications. Performing a size-, industry- or beta-neutral momentum strategy does decrease the payoffs but still yields significant returns and therefore do not explain the whole picture. As this evidence contradicts the rational literature, a promising strand of explanations is presented by behavioral finance. Likely the momentum effect is just irrational underreaction, caused by behavioral biases, especially conservatism, representativeness and self-attribution.