Abstract
ABSTRACTWe test whether momentum strategies remain profitable after considering market frictions induced by trading. Intraday data are used to estimate alternative measures of proportional and non‐proportional (price impact) trading costs. The price impact models imply that abnormal returns to portfolio strategies decline with portfolio size. We calculate break‐even fund sizes that lead to zero abnormal returns. In addition to equal‐ and value‐weighted momentum strategies, we derive a liquidity‐weighted strategy designed to reduce the cost of trades. Equal‐weighted strategies perform the best before trading costs and the worst after trading costs. Liquidity‐weighted and hybrid liquidity/value‐weighted strategies have the largest break‐even fund sizes: $5 billion or more (relative to December 1999 market capitalization) may be invested in these momentum strategies before the apparent profit opportunities vanish.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
