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

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 ۶ months, and the holding period to be ۳,۶, or ۱۲ months, we firstlyexamined the profitability of short term (۳/۶), midterm (۶/۶), and long term (۱۲/۶) momentum strategies and found that during ۲۰۱۰-۲۰۱۵ time period, only midterm momentum strategy is profitable.Then,we showedthere is no relationship between default risk andmomentum effect.

Keywords:

Momentum effect , Default risk , Asset valuation , Tehran Stock Exchange