Default Risk and Momentum Effect; Some Evidence from Tehran Stock Exchange

Document Type: Original Article

Authors

1 Allameh Tabatabaei University

2 Islamic Azad University, South Tehran Branch

3 Islamic Azad University, Islamshahr Branch

Abstract

The purpose of this paper is to analyze the relationship between default risk and momentum effect using data from companies listed on Tehran Stock Exchange.To calculate default risk,we used Black-Scholes-Merton (BSM) option pricing model. To describe momentum effect, by determining the formation period to be 6 months, and the holding period to be 3,6, or 12 months, we firstlyexamined the profitability of short term (3/6), midterm (6/6), and long term (12/6) momentum strategies and found that during 2010-2015 time period, only midterm momentum strategy is profitable.Then,we showedthere is no relationship between default risk andmomentum effect.

Keywords