Buy-Side Competition and Momentum Profits

85 Pages Posted: 1 Mar 2018 Last revised: 15 Jul 2019

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: July 04, 2019

Abstract

We show that a new measure of buy-side competition explains momentum profits. The monthly momentum spread is 1.39% when competition is low and negligible when competition is high. Better alphas are attained with superior Sharpe and Sortino ratios, less negative skewness and in more investible strategies featuring value-weighted portfolios and large capitalization stocks. Stock characteristics traditionally related to momentum do not explain our results. Evidence on long-term returns and the trading patterns of funds, their style peers, distant funds, and retail investors suggest that slow information diffusion and trend chasing explain momentum and its reversal in low competition markets.

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 (July 04, 2019). 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)

Register to save articles to
your library

Register

Paper statistics

Downloads
260
Abstract Views
962
rank
116,598
PlumX Metrics