I am grateful to the editor, an anonymous referee, Patricia Chelley-Steeley, David Hillier, Alan Hodgson, Nathan Joseph, Khelifa Mazouz, James Steeley and seminar participants at Bristol University for helpful comments on earlier drafts of the paper. I am also grateful to David A Lesmond for providing his computer codes for the estimation of the LDV model. All errors are my own.
The Post-Cost Profitability of Momentum Trading Strategies: Further Evidence from the UK
Article first published online: 13 AUG 2007
European Financial Management
Volume 13, Issue 4, pages 776–802, September 2007
How to Cite
Agyei-Ampomah, S. (2007), The Post-Cost Profitability of Momentum Trading Strategies: Further Evidence from the UK. European Financial Management, 13: 776–802. doi: 10.1111/j.1468-036X.2007.00383.x
- Issue published online: 13 AUG 2007
- Article first published online: 13 AUG 2007
- momentum strategy;
- transaction costs;
- portfolio turnover;
- market efficiency
This paper examines the post-cost profitability of momentum trading strategies in the UK over the period 1988–2003 and provides direct evidence on stock concentration, turnover and trading cost associated with the strategy. We find that after factoring out transaction costs the profitability of the momentum strategy disappears for shorter horizons but remains for longer horizons. Indeed, for ranking and holding periods up to 6-months, profitable momentum returns would not be available to most average investors as the cost of implementation outweighs the possible returns. However, we find post-cost profitability for ranking and/or holding periods beyond 6 months as portfolio turnover and its associated cost reduces. We find similar results for a sub-sample of relatively large and liquid stocks.