Buy-Side Competition and Momentum Profits

61 Pages Posted: 1 Mar 2018 Last revised: 18 May 2018

See all articles by Gerard Hoberg

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Nitin Kumar

Indian School of Business (ISB), Hyderabad

Nagpurnanand Prabhala

The Johns Hopkins Carey Business School

Date Written: March 12, 2018

Abstract

We develop a measure of buy-side competition for momentum investing and show that it explains momentum profits. The monthly momentum spread is 139 basis points when competition is low and is negligible when competition is high. These results are stronger in more investible and lower transaction cost strategies such as value-weighted portfolios and larger capitalization stocks. Better alphas are attained with less negative skewness and better Sharpe and Sortino ratios. Several stock characteristics traditionally related to momentum profits do not explain our results.

Keywords: Momentum, Competition, Mutual Funds, Market Efficiency, Return Predictability

JEL Classification: G10, G11, G12, G14

Suggested Citation

Hoberg, Gerard and Kumar, Nitin and Prabhala, Nagpurnanand, Buy-Side Competition and Momentum Profits (March 12, 2018). Available at SSRN: https://ssrn.com/abstract=3132378 or http://dx.doi.org/10.2139/ssrn.3132378

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~hoberg/

Nitin Kumar (Contact Author)

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

India

Nagpurnanand Prabhala

The Johns Hopkins Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States
+1 410 234 4532 (Phone)

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