Essays on momentum in frontier equity markets

Buwembo, Mark

Essays on momentum in frontier equity markets

Thesis / Dissertation

2026

Publisher

University of Cape Town

Department

Department of Finance and Tax

Faculty

Faculty of Commerce

Abstract

Empirical research on momentum-based investment strategies has been limited in frontier equity markets with the bulk of prior studies focusing on developed and emerging markets. Frontier markets present distinct structural market inefficiencies, volatility, liquidity constraints and transaction costs that challenge traditional assumptions. This study addresses critical gaps in the momentum literature by first investigating the performance of the traditional cross-sectional momentum strategy relative to the theoretically improved alternative momentum strategies including 52week high momentum, time-series momentum, dual momentum and residual momentum in frontier markets. This is because cross-sectional momentum strategies have been criticised due to non-profitability during volatile market states yet frontier markets are characterised by higher market volatility and therefore alternative momentum strategies could suit them better. The study also investigates the drivers of the different momentum strategy returns and quantifies the impact of transaction costs on the profitability of these momentum strategies in frontier markets. The study utilises a dataset of 11 frontier markets spanning different global regions across the period from 2007 to 2023. The findings reveal that the momentum effect is present in all sampled frontier markets except Cyprus. Overall, the alternative momentum strategies generate more persistent profits than the cross-sectional momentum strategy. Contrary to the results of developed and emerging market literature, shorter-term momentum strategies are found to outperform longer-term momentum strategies. Factor analysis reveals that systematic risk explains only a fraction of momentum returns thus giving support to behavioural theories. Further tests confirm that investor underreaction also plays a role in explaining the momentum returns. However, when portfolio transaction costs are estimated and accounted for using a limited dependent variable model, the momentum profits are eliminated in the majority of the sampled markets except for the short-term strategies.

Keywords

momentum-based investment

frontier equity markets

Reference:

Collections

PhD / Doctoral

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