The Illusory Nature of Momentum Profits

By David A. Lesmond, Michael J. Schill, Chunsheng Zhou. 2004

684 citations recorded by the source corpus.

Subfields: Economics and Econometrics, Finance, Management Science and Operations Research

View Paper: https://www.semanticscholar.org/paper/a2047655ef23e37c91bfc063a977c558cc9ee903

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Finance

In Management Science and Operations Research

Citations in the corpus

Price Momentum and Idiosyncratic Volatility (2008, neutral): “Korajczyk and Sadka (2004) and Lesmond, Shill and Zhou (2004) examine the profitability of momentum strategies after transactions costs.”
Currency Momentum Strategies (2012, neutral): “Lesmond, Schill, and Zhou (2004) state that reasonably high transaction costs may wipe out momentum profits.”
On the Scope and Drivers of the Asset Growth Effect (2011, neutral): “…have been used by others to explore mispricing using other return effects (see Pontiff (1996) (closed-end funds), Ali, Hwang, and Trombley (2003) (value effect), Lesmond, Schill, and Zhou (2004), McLean (2010) (price momentum and reversal), and Gagnon and Karolyi (2010) (cross-market effects)).”
A Simple Way to Estimate Bid-Ask Spreads from Daily High and Low Prices (2012, methodology): “The LOT measure, as calculated in the original Lesmond et al. (1999) paper is much higher at 5.”
Tactical Allocation in Commodity Futures Markets: Combining Momentum and Term Structure Signals (2010, neutral): “A potential flaw of the evidence presented thus far is that the active profits could be eroded by transaction costs or merely arise as a compensation for market frictions and thin trading (see Lesmond et al. , 2004).”
The Disposition E ff ect and Underreaction to News (2006, background): “21 Lesmonda et al. (2004) provide evidence that this assumption is a fairly reasonable one.”
The Cross-Section of Stock Returns in Frontier Emerging Markets (2012, neutral): “Note that we assume the same transaction costs for each of the 150 largest stocks in our sample, while it could be the case that, e.g., momentum stocks are more expensive than the average stock (see, e.g., Korajczyk and Sadka (2004) and Lesmond, Schill, and Zhou (2004)).”
Corporate Yield Spreads and Bond Liquidity (2007, neutral): “Lesmond et al. (1999) and Lesmond et al. (2004) find that this method works well for equity markets, as evidenced by an 80% correlation between the LOT liquidity estimate and the bid‐ask spread plus commissions.”
International momentum strategies: a stochastic dominance approach (2005, background): “Lesmond et al. (2004) finds that this pattern has persisted.”
Can Commodity Futures be Profitably Traded with Quantitative Market Timing Strategies (2008, background): “Lesmond, Schill, and Zhou (2004) show that the profits to equity market momentum trading strategies are predominately earned from short-sales of small illiquid stocks which is difficult, if not impossible, in reality.”
Do Market Efficiency Measures Yield Correct Inferences? A Comparison of Developed and Emerging Markets (2010, background): “33 Previous literature has shown that, in the U.S., gross profits from strategies based on past reversals (Conrad, Gultekin, and Kaul 1997) and momentum (Lesmond, Schill, and Zhou 2004) tend to be positively related to transaction costs.”
Momentum has its moments (2015, background): “For example, Lesmond, Schill, and Zhou (2004) infer costs indirectly from observed trading behavior and find that momentum is not exploitable.”
A Taxonomy of Anomalies and Their Trading Costs (2014, background): “Lesmond et al. (2004) argue that while the large gross spreads observed on momentum trades create an “illusion of profit opportunity when, in fact, none exists.””
Beyond the Carry Trade: Optimal Currency Portfolios (2015, background): “For example, Jegadeesh and Titman (1993) provide compelling evidence that there is momentum in stock prices, but Lesmond et al. (2004) nd that after taking transaction costs into consideration there are little to no gains to be obtained in exploiting momentum.”