66 Pages Posted: 12 Dec 2009 Last revised: 22 Feb 2014
Date Written: December 9, 2009
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 from 1866-1907 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.
Keywords: Limit to arbitrage, Momentum
JEL Classification: G1, G12, G14
Suggested Citation: 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 9, 2009). Available at SSRN: https://ssrn.com/abstract=1521329 or http://dx.doi.org/10.2139/ssrn.1521329