Price momentum returns and investor behavior in an emerging market: Evidence from the Nepal Stock Exchange

This study analyzes the performance of price momentum (P/M) strategies and tests weak-form market inefficiency in the Nepal Stock Exchange (NEPSE). It employed a quantitative longitudinal design to investigate 329 value-weighted portfolios that were rebalanced quarterly from 2014 to 2025, each portfolio consisting of one stock per sector (nine sectors) selected based on the highest quarterly price appreciation. Portfolio returns were measured against the market benchmark for holding periods of 1 month to 5 years. Risk-adjusted performance was measured by the Sharpe and Treynor ratios. P/M portfolios produced market-adjusted excess returns of 4.2% to 25.9%, with an average of 15.6% over the market benchmark. The 6-month holding period yielded the highest returns, with diminishing profitability for longer time periods. This inverse-U pattern is consistent with behavioral explanations based on investor underreaction and delayed overreaction. The P/M strategies consistently outperforming the market provide evidence against weak-form market efficiency, supporting the presence of weak-form market inefficiency in the NEPSE and suggesting that historical pricing data can be utilized to generate above-market returns. The results emphasize the significance of P/M strategies in portfolio formation for investors and contribute to the broader discourse on investor behavior and market efficiency in emerging markets.