Low-Cost Momentum Strategies

The article analyses the impact of trading costs on the profitability of momentum strategies in the UK and concludes that losers are more expensive to trade than winners.

Author(s) :

Chris Brooks

ICMA Centre, University of Reading

Xiafei Li

Bradford School of Management

Joelle Miffre

PhD, Professor of Finance, EDHEC Business School

The observed asymmetry in the costs of trading winners and losers crucially relates to the high cost of selling loser stocks with small size and low trading volume. Since transaction costs severely impact net momentum profits, the paper defines a new low-cost relative-strength strategy by shortlisting from all winner and loser stocks those with the lowest total transaction costs. While the study severely questions the profitability of standard momentum strategies, it concludes that there is still room for momentum-based return enhancement, should asset managers decide to adopt lowcost relative-strength strategies.
Pdf
Low-Cost Momentum Strategies...
(-1.00 B)
Type : Working paper
Date : le 05/05/2008
Extra information : Pour plus d'informations, nous vous prions de vous adresser à Joanne Finlay, Direction de la recherche de l'EDHEC [ joanne.finlay@edhec.edu] Les opinions exprimées sont celles de l'auteur et n'engagent pas la responsabilité de l'EDHEC.
Research Cluster : Finance

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