Price and Earnings Momentum, Transaction Costs, and an Innovative Practitioner Technique

43 Pages Posted: 19 Jan 2016

See all articles by Reza Tajaddini

Reza Tajaddini

University of Otago - Department of Accountancy and Finance

Timothy Falcon Crack

University of Otago

Helen Roberts

University of Otago - Department of Accountancy and Finance

Date Written: December 2015

Abstract

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.

JEL Classification: G11, G14, G15

Suggested Citation

Tajaddini, Reza and Crack, Timothy Falcon and Roberts, Helen, Price and Earnings Momentum, Transaction Costs, and an Innovative Practitioner Technique (December 2015). International Review of Finance, Vol. 15, Issue 4, pp. 555-597, 2015. Available at SSRN: https://ssrn.com/abstract=2716881 or http://dx.doi.org/10.1111/irfi.12065

Reza Tajaddini (Contact Author)

University of Otago - Department of Accountancy and Finance ( email )

60 Clyde Street
Dunedin, Otago
New Zealand

Timothy Falcon Crack

University of Otago

Helen Roberts

University of Otago - Department of Accountancy and Finance ( email )

PO Box 56
Dunedin, 9054
New Zealand
6434798072 (Phone)
6434798171 (Fax)

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