Sector-relative momentum in Swedish Small-Cap stocks

Sammanfattning

This study examines the performance of momentum strategies in the Swedish small-capequity universe over the period 2010-2026. Both traditional momentum strategies andresidual momentum strategies were constructed using weekly price data and were evaluatedover multiple lookback horizons, portfolio constructions and robustness specifications. Theresidual momentum strategies were obtained by removing sector exposure through a rollingregression framework, resulting in a sector-relative momentum signal.The results show that a sector-relative approach consistently delivers higher risk-adjustedreturns than traditional momentum, with sharpe ratios reaching up to 0.8 compared to 0.57for the corresponding traditional strategy. However, bootstrap tests indicate that differences inrisk-adjusted performance between the residual and traditional strategies are not statisticallysignificant at conventional levels. A transaction cost analysis shows that profitability for bothapproaches are highly sensitive to trading costs, with alpha largely disappearing underrealistic cost assumptions. Overall, the findings suggest that momentum exists in the Swedishsmall-cap equity universe. While a sector-relative momentum approach seems to improverisk-adjusted performance and robustness, economic significance depends heavily onimplementation costs.