Feasible Momentum Strategies in the US Stock Market
New research tries to get around those high transaction costs.
BY Manuel Ammann, Marcel Moellenbeck, and Markus M. Schmid | December 16, 2010
While there is a large literature documenting the profitability of momentum strategies, their im- plementation is afflicted with many difficulties. Most importantly, high turnover and costs to hold short positions, especially in small-cap stocks, result in high transaction costs. We restrict our investment universe to large-capitalized stocks included in the S&P 100 index. Moreover, we implement simple investment strategies that invest long in single stocks and short in the stock index. Such simple and cost-saving momentum strategies generate economically high and statistically significant abnormal returns. These results are robust to various risk-adjustments including the CAPM, the Fama French (1993) three-factor model, and a conditional version of the Fama and French (1993) three-factor model. Read the full paper.