Working Paper: CEPR ID: DP10804
Authors: Peter S. Schmidt; Andreas Schrimpf; Urs Von Arx; Alexander F. Wagner; Andreas Ziegler
Abstract: We study the link between the profitability of momentum strategies and firm size, drawing on an extensive dataset covering 23 stock markets across the globe. We first present evidence of an ?extreme? size premium in a large number of countries. These size premia, however, are most likely not realizable due to low stock market depth. We also show that international momentum profitability declines sharply with market capitalization. Momentum premiums are also considerably diminished by trading costs, when taking into account the actual portfolio turnover incurred when implementing this strategy. In contrast to strategies based on size, we find that momentum premia especially for medium-sized stocks still remain economically and statistically significant in most equity markets worldwide after adjusting for transaction costs.
Keywords: Asset Pricing; Anomalies; International Equity Markets; Momentum; Size; Transaction Costs
JEL Codes: C89; G12; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| momentum profitability in medium-sized stocks (L25) | momentum profitability in large stocks (C69) |
| momentum profitability in medium-sized stocks (L25) | realizable momentum profits (G19) |
| trading costs (F12) | momentum premia for small stocks (G19) |
| trading costs (F12) | momentum profitability (C69) |
| market capitalization increase (E22) | momentum profitability (C69) |
| larger stocks (G10) | momentum profits compared to medium-sized stocks (L25) |