Low-cost momentum strategies

Li, X., Brooks, C. ORCID: https://orcid.org/0000-0002-2668-1153 and Miffre, J. (2009) Low-cost momentum strategies. Journal of Asset Management, 9 (6). pp. 366-379. ISSN 1470-8272 doi: 10.1057/jam.2008.28

Abstract/Summary

This paper analyses the impact of trading costs on the profitability of momentum strategies in the United Kingdom and concludes that losers are more expensive to trade than winners. 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 low-cost relative-strength strategies.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/36097
Identification Number/DOI	10.1057/jam.2008.28
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Publisher	Palgrave Macmillan
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