We test how market frictions might limit momentum profits. While most
papers assume that investors can self-finance, in practice, investors must invest
capital or borrow for long stock positions. No self-financing can occur. Traders
can borrow to buy longs, short losers, and earn the rebate interest on the short
sale proceeds. We find that the difference between the margin and rebates rates
is 139 bp for 1946-2002. We test on large stocks where trade and costs are lower
and price impact costs are minimal. Net of trade and borrowing costs, largestock
momentum earns, on a raw return basis, 5% per unit of borrowed capital
annually. Risk-adjusted tests show larger premia.
(JEL G32, L1)
Key words: momentum, long-short strategies, market efficiency
학술대회/행사
학술대회안내
[2008년 제 4차] Are momentum premia robust to trade frictions? Test
작성자 : 관리자
조회수 : 1044
게시일 :
2008-12-11