Feasible Momentum Strategies

Momentum strategies based on continuations in stock prices have become increas-ingly popular among academics, money managers, and investors in recent years. While there is little controversy on the profitability of momentum strategies, their implementation is afflicted with many difficulties. Most importantly, chasing mo-mentum can generate high turnover. Hence, the implementation of momentum strategies requires a focus on managing trading costs. We test different momentum strategies based exclusively on large-cap stocks for the Swiss stock market. Our re-sults show that the returns to such strategies are comparable to those obtained by prior research allowing the strategy to chose from a much larger sample of stocks including illiquid and high-cost small-caps. By restricting our strategy to chose only one stock into the winner and loser portfolios and introducing a one-month lag between the formation and holding period, we are able to further increase the aver-age annualized returns of our feasible momentum strategies to up to 46.48%.