Access

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

If you need an accessible version of this item please contact JSTOR User Support

Are Momentum Profits Robust to Trading Costs?

Robert A. Korajczyk and Ronnie Sadka
The Journal of Finance
Vol. 59, No. 3 (Jun., 2004), pp. 1039-1082
Published by: Wiley for the American Finance Association
Stable URL: http://www.jstor.org/stable/3694730
Page Count: 44
  • Read Online (Free)
  • Download ($33.95)
  • Cite this Item
If you need an accessible version of this item please contact JSTOR User Support
Are Momentum Profits Robust to Trading Costs?
Preview not available

Abstract

We 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.

Page Thumbnails

  • Thumbnail: Page 
1039
    1039
  • Thumbnail: Page 
1040
    1040
  • Thumbnail: Page 
1041
    1041
  • Thumbnail: Page 
1042
    1042
  • Thumbnail: Page 
1043
    1043
  • Thumbnail: Page 
1044
    1044
  • Thumbnail: Page 
1045
    1045
  • Thumbnail: Page 
1046
    1046
  • Thumbnail: Page 
1047
    1047
  • Thumbnail: Page 
1048
    1048
  • Thumbnail: Page 
1049
    1049
  • Thumbnail: Page 
1050
    1050
  • Thumbnail: Page 
1051
    1051
  • Thumbnail: Page 
1052
    1052
  • Thumbnail: Page 
1053
    1053
  • Thumbnail: Page 
1054
    1054
  • Thumbnail: Page 
1055
    1055
  • Thumbnail: Page 
1056
    1056
  • Thumbnail: Page 
1057
    1057
  • Thumbnail: Page 
1058
    1058
  • Thumbnail: Page 
1059
    1059
  • Thumbnail: Page 
1060
    1060
  • Thumbnail: Page 
1061
    1061
  • Thumbnail: Page 
1062
    1062
  • Thumbnail: Page 
1063
    1063
  • Thumbnail: Page 
1064
    1064
  • Thumbnail: Page 
1065
    1065
  • Thumbnail: Page 
1066
    1066
  • Thumbnail: Page 
1067
    1067
  • Thumbnail: Page 
1068
    1068
  • Thumbnail: Page 
1069
    1069
  • Thumbnail: Page 
1070
    1070
  • Thumbnail: Page 
1071
    1071
  • Thumbnail: Page 
1072
    1072
  • Thumbnail: Page 
1073
    1073
  • Thumbnail: Page 
1074
    1074
  • Thumbnail: Page 
1075
    1075
  • Thumbnail: Page 
1076
    1076
  • Thumbnail: Page 
1077
    1077
  • Thumbnail: Page 
1078
    1078
  • Thumbnail: Page 
1079
    1079
  • Thumbnail: Page 
1080
    1080
  • Thumbnail: Page 
1081
    1081
  • Thumbnail: Page 
1082
    1082