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Price and Earnings Momentum, Transaction Costs, and an Innovative Practitioner Technique
Author(s) -
Tajaddini Reza,
Crack Timothy Falcon,
Roberts Helen
Publication year - 2015
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12065
Subject(s) - transaction cost , momentum (technical analysis) , earnings , ex ante , economics , database transaction , business , econometrics , microeconomics , financial economics , computer science , finance , programming language , macroeconomics
We use an innovative practitioner technique to investigate the interplay between the ex post performance of momentum strategies and transaction costs, rebalancing frequency, turnover constraints, and fund size. We have three interrelated main results: first, the level of and correlation between active returns to price momentum and earnings momentum strategies vary dramatically with these factors; second, strategies that are fearful of ex ante transaction costs generate returns net of transaction costs that are far superior to the net returns of naive strategies; and third, obtaining better traction with the unique elements of each strategy yields a more profitable combined strategy.