The Fading Abnormal Returns of Momentum Strategies

31 Pages Posted: 19 May 2009

See all articles by Thomas Henker

Thomas Henker

Bond University

Martin Martens

Erasmus University Rotterdam (EUR); Robeco Asset Management

Robert Huynh

UNSW Australia Business School, School of Banking and Finance

Date Written: May 20, 2007

Abstract

We find increasingly large variations in returns from momentum strategies in recent years. Momentum strategies did not earn significant excess returns during the period of 1993-2004 which was due to their poor performance over the period from 2001-2004. Using sub-samples of smaller capitalization stocks increases momentum portfolio returns and reduces return volatity. We also evaluate momentum portfolios that are formed prior to the end of month portfolio formation universally used in the academic literature. Consistent with institutional momentum trading affecting end of month returns and volatility, we find that 'front-running' a momentum strategy generates similar, but less volatile returns than following a month-end strategy.

Keywords: Momentum portfolio, front-running, abnormal return, portfolio selection

JEL Classification: G12, G14

Suggested Citation

Henker, Thomas and Martens, Martin P.E. and Huynh, Robert, The Fading Abnormal Returns of Momentum Strategies (May 20, 2007). UNSW Australian School of Business Research Paper No. 1401727. Available at SSRN: https://ssrn.com/abstract=1401727 or http://dx.doi.org/10.2139/ssrn.1401727

Thomas Henker (Contact Author)

Bond University ( email )

Gold Coast, QLD 4229
Australia
+61 7 5595-1561 (Phone)

Martin P.E. Martens

Erasmus University Rotterdam (EUR) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1253 (Phone)
+31 10 408 9162 (Fax)

Robeco Asset Management ( email )

Rotterdam, 3011 AG
Netherlands

Robert Huynh

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

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