Cultural dimensions, economic policy uncertainty, and momentum investing: international evidence

Culture, i.e. our values, norms, beliefs, and expected behaviors, has a significant influence on all aspects of social behavior. In addition, the economic policy-making of governments has been shown to have a significant impact on financial markets. In this paper, for the first time, we combine these two findings to examine whether, and if so how, culture and economic policy uncertainty have an impact on style investing, and more specifically on the popular momentum investing. We also extend previous studies in that we employ additional cultural dimensions, rather than just individualism, such as power distance, uncertainty avoidance, masculinity, and long-term orientation (Hofstede [1980]. Culture's Consequences: International Differences in Work-Related Values. Beverly Hills, CA: Sage, [1991]. Cultures and Organizations: Software of the Mind. London: McGraw-Hill, [2001]. Culture's Consequences. 2nd ed. Beverly Hills, CA: Sage, [2011]. “Dimensionalizing Cultures: The Hofstede Model in Context.” Online Readings in Psychology and Culture 2 (1): 1–26). Our results indicate a strong link between cultural dimensions, economic policy uncertainty, and momentum investing in international financial markets. We argue that this link is not affected by differences in the economic cycle, and/or global variables such as oil prices and global market-related uncertainty, and that apart from individualism, there are other cultural elements, which may influence momentum investing.