Momentum Cycles and Limits to Arbitrage Evidence from Victorian England and Post-Depression Us Stock Markets

66 Pages Posted: 22 Dec 2009 Last revised: 6 Feb 2023

See all articles by Benjamin Remy Chabot

Benjamin Remy Chabot

Federal Reserve Bank of Chicago

Eric Ghysels

University of North Carolina Kenan-Flagler Business School; University of North Carolina (UNC) at Chapel Hill - Department of Economics

Ravi Jagannathan

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); Indian School of Business (ISB), Hyderabad

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Date Written: December 2009

Abstract

We evaluate the importance of "Limits to Arbitrage" to explain profitability of momentum strategies. Specifically, when the availability of arbitrage capital is in short supply, momentum cycles last longer, and breaks in momentum cycles are shorter. We demonstrate the robustness of our findings with a unique database of stock returns from1866-1907 London and the CRSP database. Momentum cycle durations are similar in both databases and all other momentum facts documented in the literature using the CRSP database hold for the Victorian period as well, except for the January reversal due to the absence of capital gains taxation.

Suggested Citation

Chabot, Benjamin Remy and Ghysels, Eric and Jagannathan, Ravi, Momentum Cycles and Limits to Arbitrage Evidence from Victorian England and Post-Depression Us Stock Markets (December 2009). NBER Working Paper No. w15591, Available at SSRN: https://ssrn.com/abstract=1525769

Benjamin Remy Chabot (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Eric Ghysels

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

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Ravi Jagannathan

Northwestern University - Kellogg School of Management ( email )

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United States
847-491-8338 (Phone)
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National Bureau of Economic Research (NBER)

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Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
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Shanghai, 200030
China

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

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