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Feasible Momentum Strategies - Evidence from the Swiss Stock Market
Journal
Financial Markets and Portfolio Management
ISSN
1555-4961
ISSN-Digital
2373-8529
Type
journal article
Date Issued
2007-09-01
Author(s)
Rey, David M.
Abstract
While there is little controversy on the profitability of momentum strategies, their implementation is afflicted with many difficulties. Most important, chasing momentum can generate high turnover. Though there are already several attempts to make momentum strategies less expensive with respect to transaction costs, we go a step further in the simplification of momentum strategies. By restricting our sample to Switzerland's largest blue-chip stocks and choosing only one winner and one loser stock, we find average returns to our momentum arbitrage portfolios of up to 44% p.a. depending on the formation and holding periods. While unconditional risk models are at odds with momentum profits, stock market predictability and time-varying expected returns explain a large part of the momentum payoffs, including the post-holding period behavior of the winner and loser stocks (overreaction and subsequent price correction). We also report interesting patterns of a number of stock characteristics over the (pre-)formation and (post-)holding periods.
Language
English
Keywords
Momentum strategies
Large-caps
Event study analysis
Stock market predictability
Under- and overreaction
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Springer
Publisher place
Heidelberg
Volume
21
Number
3
Start page
325
End page
352
Pages
28
Subject(s)
Division(s)
Eprints ID
210188