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Refining momentum strategies by conditioning on prior long‐term returns: Canadian evidence
Author(s) -
Deaves Richard,
Miu Peter
Publication year - 2007
Publication title -
canadian journal of administrative sciences / revue canadienne des sciences de l'administration
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 48
eISSN - 1936-4490
pISSN - 0825-0383
DOI - 10.1002/cjas.11
Subject(s) - profitability index , momentum (technical analysis) , predictability , term (time) , transaction cost , economics , econometrics , trading strategy , database transaction , monetary economics , financial economics , computer science , microeconomics , finance , mathematics , statistics , physics , quantum mechanics , programming language
Abstract Cross‐sectional returns in Canada are predictable using both momentum and reversal strategies. Synergies realized by focusing on the entire term structure of prior returns lead to better predictability. An enhanced index strategy based on these synergies is profitable most of the time after controlling for transaction costs, although the degree of profitability changes over time. Simulation shows that recent profitability is mainly attributable to the short‐side of the momentum strategy. Copyright © 2007 ASAC. Published by John Wiley & Sons, Ltd.