The Illusory Nature of Momentum Profits

Feasible momentum strategies: Evidence from the Swiss stock market

“…6 If anything, the returns to our momentum strategies are higher. This is especially surprising because Lesmond et al (2004) show that the momentum portfolios, and particularly the loser portfolio that generates the majority of the total strategy abnormal return, are comprised of stocks that can be characterized as small, low price, high beta, off-NYSE stocks. 7 In contrast, our results reveal that even very basic momentum strategies, consisting of long and short positions in only one single Swiss blue-chip stock, yield average returns which are comparable to or even higher than those of earlier research allowing their strategies to choose from all stocks listed at NYSE, AMEX, and NASDAQ and investing in the winner and loser deciles.…”

“…over the more recent sub-period. Hong et al (2000), Jegadeesh and Titman (2001), and Lesmond et al (2004), for example, find that the majority of the momentum returns is generated by the short positions. Despite the fact that the mean returns to the loser portfolios over the full sample period are negative, our results do not confirm their findings.…”

“…However, they still conclude that momentum profits are large enough to be economically exploitable. In contrast, the findings of Lesmond et al (2004) suggest that momentum strategies require frequent trading in disproportionately high-cost securities such that trading costs prevent profitable strategy execution. In the cross-section, they find that those stocks that generate large momentum returns are precisely those stocks with high trading costs.…”

Stratégies de momentum sectoriel au Canada

“…Ces dernières qui ont trait à la quantité et la qualité de l'information disponible peuvent expliquer la rentabilité relative des stratégies de momentum. Lesmond et al (2001) montrent que les coûts de transaction sont corrélés négativement à la taille des entreprises et au prix des titres et que la rentabilité des stratégies de momentum est reliée positivement aux coûts de transaction. Hong et al (2000) concluent que la rentabilité des stratégies de momentum décroît avec la taille des entreprises et le suivi des analystes financiers, et ce plus spécifiquement pour les portefeuilles perdants.…”

The 52-week high, momentum, and predicting mutual fund returns

“…Jegadeesh and Titman (2001) and Korajczyk and Sadka (2004) find that momentum profits appear to be positive even after taking into account trading costs. However, Grundy and Martin (2001) and Lesmond et al (2004) argue that momentum trading does not appear profitable after transaction costs. In particular, Grundy and Martin note that short-term momentum investing in stocks is a volatile strategy that frequently delivers negative payoffs.…”