Journal ArticleDOI
Are Momentum Profits Robust to Trading Costs
Robert A. Korajczyk,Ronnie Sadka +1 more
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TLDR
In this paper, the authors test whether momentum-based strategies remain profitable after considering market frictions, in particular price concessions induced by trading, and find that, after taking into account the price impact induced by trades, as much as 5 billion dollars (relative to December 1999 market capitalization) may be invested in some momentum based strategies before the apparent profit opportunities vanish.Abstract:
This paper tests whether momentum-based strategies remain profitable after considering market frictions, in particular price concessions induced by trading. Alternative measures of price impact are estimated and applied to alternative momentum-based trading rules. The performance of traditional momentum strategies, in addition to strategies designed to reduce the cost of trades, is evaluated. We find that, after taking into account the price impact induced by trades, as much as 5 billion dollars (relative to December 1999 market capitalization) may be invested in some momentum-based strategies before the apparent profit opportunities vanish. Other, extensively studied, momentum strategies are not implementable on a large scale. The persistence of momentum returns exhibited in the data remains an important challenge to the asset-pricing literature.read more
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Journal ArticleDOI
Momentum in Corporate Bond Returns
TL;DR: In this article, the authors document significant momentum in a comprehensive sample of 81,491 US corporate bonds with both transaction and dealer-quote data from 1973 to 2011, showing that momentum is driven by non-investment grade (NIG) bonds.
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Idiosyncratic Risk, Long-Term Reversal, and Momentum
TL;DR: In this article, the persistence of the momentum and reversal effects is the result of idiosyncratic risk limiting arbitrage, regardless of the arbitrageur's level of diversification, and the results along with those in related studies suggest that transaction costs are sufficient to prevent arbitrageurs from eliminating momentum mispricing.
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An Anatomy of Pairs Trading: The Role of Idiosyncratic News, Common Information and Liquidity
TL;DR: In this article, the authors find that pairs trading profits are higher when the initial divergence is due to news that temporarily reduces the liquidity of one of the stocks in the pair, or news that affects both stocks in a pair, and there are a priori reasons to believe that one stock reacts faster to such news.
Journal ArticleDOI
Return Differences between Trading and Non-Trading Hours: Like Night and Day
TL;DR: This paper decompose the US equity premium into day (open to close) and night (close to open) returns and find that night returns are consistently higher than day returns across days of the week, days of month, and months of the year.
Journal ArticleDOI
Sources of Momentum Profits: Evidence on the Irrelevance of Characteristics
Pavel Bandarchuk,Jens Hilscher +1 more
TL;DR: In this paper, the authors show that trading in stocks with more extreme past returns can enhance momentum profits, and that the effect of stock-level characteristics (size, R², turnover, age, analyst coverage, analyst forecast dispersion, market-to-book, price, illiquidity, credit rating) disappear almost entirely.
References
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Journal ArticleDOI
Common risk factors in the returns on stocks and bonds
Eugene F. Fama,Kenneth R. French +1 more
TL;DR: In this article, the authors identify five common risk factors in the returns on stocks and bonds, including three stock-market factors: an overall market factor and factors related to firm size and book-to-market equity.
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Risk, Return, and Equilibrium: Empirical Tests
Eugene F. Fama,James D. MacBeth +1 more
TL;DR: In this article, the relationship between average return and risk for New York Stock Exchange common stocks was tested using a two-parameter portfolio model and models of market equilibrium derived from the two parameter portfolio model.
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Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency
TL;DR: In this article, the authors show that strategies that buy stocks that have performed well in the past and sell stocks that had performed poorly in past years generate significant positive returns over 3- to 12-month holding periods.
Journal ArticleDOI
Does the Stock Market Overreact
TL;DR: In this article, a study of market efficiency investigates whether people tend to "overreact" to unexpected and dramatic news events and whether such behavior affects stock prices, based on CRSP monthly return data, is consistent with the overreaction hypothesis.