Abstract
We test whether a Genetic Algorithm (GA) can find profitable investment strategies based on prior stock returns and earnings surprises. We add to the argument whether momentum investing profits are a statistical illusion. The performance of the optimized momentum portfolios is evaluated before and after trading costs, during different time periods, over two market states, and after adjusting for risk. The GA optimization improves the annual returns of the momentum strategies by 2% to 6%. After considering transaction costs, both price and earnings momentum portfolios do not appear to generate abnormal returns. Positive risk-adjusted returns net of trading costs are documented solely in the ‘up’ markets for a portfolio long in prior winners only.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: 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.