Working Paper: CEPR ID: DP3353
Authors: Markus Glaser; Martin Weber
Abstract: This Paper analyses the relation between momentum strategies (strategies that buy stocks with high returns over the previous three to 12 months and sell stocks with low returns over the same period) and turnover (number of shares traded divided by the number of shares outstanding) for the German stock market. Our main finding is that momentum strategies are more profitable among high-turnover stocks. In contrast to US evidence, this result is driven mainly by winners: high-turnover winners have higher returns than low-turnover winners. We present various robustness checks, long-horizon results, evidence on seasonality, and control for size-, book-to-market-, and industry-effects. We argue that our results are useful to empirically evaluate competing explanations for the momentum effect.
Keywords: Asset Pricing; Momentum Strategies; Return Predictability; Turnover
JEL Codes: G10; G11; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high-turnover stocks (G14) | increased momentum returns (G31) |
| high-turnover winners (L83) | increased momentum returns (G31) |
| low-turnover winners (L83) | increased momentum returns (G31) |
| poor performance of high-turnover losers (D29) | above-average performance of high-turnover momentum strategies (L25) |