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Live Test of Sophisticated Long-only Stock Momentum Investing

Posted in Momentum Investing

How efficiently can a sophisticated fund manager implement long-only stock momentum portfolios? In their December 2017 paper entitled "Implementing Momentum: What Have We Learned?", Adrienne Ross, Tobias Moskowitz, Ronen Israel and Laura Serban use seven years of live data for long-only U.S. and international momentum funds to measure the import of implementation frictions. They segment these frictions into turnover/trading costs, tax impacts and mitigating portfolio construction choices. The underlying momentum strategies converge on the top third of stocks based on a combination of market capitalization and momentum signal strength (using multiple measures of momentum), reformed monthly. Portfolio construction employs a transaction cost model to minimize costs by: substituting stocks with similar momentum that are cheaper to trade, trading patiently and employing algorithmic trading rules designed to suppress price impacts of trades. Using detailed trade and performance data for the specified momentum funds during July 9, 2009 through December 31, 2016, they find that:

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