The cross-section of average annual returns on German common stock in the period of 1881-1913 exhibits several of the patterns that have been observed in more recent U.S. data. Market beta is hardly important, and its explanatory power is swamped by size and the ratio of book value to market value. A book-to-market risk measure #covariance with a portfolio long in high book-to-market #rms and short in low book-to-market #rms# has no e#ect on the explanatory power of the book-to-market characteristic. But the size e#ect appears to be caused by selection bias in the sample. And the book-to-market e#ect is opposite that of the recent U.S. experience #and, hence, can certainly not be attributed to selection bias#. Finally, a momentum portfolio constructed on the basis of the error of the basic 3-characteristic model #market beta, size and book-to-market# does not generate signi#cant returns. These #ndings highlight the variability in the power of certain characteristics in explaining the c...

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We find increasingly large variations in returns from momentum strategies in recent years. Momentum strategies did not earn significant excess returns during the period of 1993-2004 which was due to their poor performance over the period from 2001-2004. Using subsamples of smaller capitalization stocks increases momentum portfolio returns and reduces return volatity. We also evaluate momentum portfolios that are formed prior to the end of month portfolio formation universally used in the academic literature. Consistent with institutional momentum trading affecting end of month returns and volatility, we find that ‘front-running ’ a momentum strategy generates similar, but less volatile returns than following a month-end strategy. JEL Classifications:

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This study investigates a tactical asset allocation strategy, known as contrarian investment strategies, for equities listed on the Australian Stock Exchange. We examine the relationship between stock returns of extreme portfolios with past trading volume and other finance fundamental factors including firm size, sales, earnings per share (EPS), capital expenditure (CAPEX) and leverage for equities within these portfolios. The empirical results demonstrate that contrarian behaviour is a persistent feature of stock returns for strategies examined in Australia. We also document the returns of contrarian portfolios, which can be as high as 1.75 % per month. Interestingly, the empirical results do not support the view that trading volume and EPS affect stock returns. It is shown that contrarian profits are driven by small firms, firms with low levels of sales, firms that do not invest heavily in capital and firms with low borrowings.

Investing in size and book-to-market portfolios: Some New Trading

participants at the University of Miami for helpful comments. Are Institutions Momentum Traders? This paper examines institutional trading in momentum portfolios. The key result is that institutions engage in momentum trading over the subsequent 3 quarters, buying winners and selling losers, in response to past returns but not past earnings news. Momentum trading is strengthened, however, when returns are accompanied by earnings news of the same sign. While past high returns predict future institutional buying, past institutional buying does not predict future stock returns. Among institutions, investment advisors (e.g. mutual funds and brokerage firms) are the most active momentum traders; banks and insurance companies the least active. Additional tests indicate that institutional momentum trading is concentrated among high volume winners and losers and among low B/M winners and high B/M losers

In markets with trading friction, the incorporation of information into market prices can be substantially delayed through a weakening of the arbitrage process. We re-examine the profitability of relative strength trading strategies (buying past strong performers and selling past weak performers) by testing the predictions of a friction-based explanation. We provide a model of price friction and then use this model to infer trading costs from investor behavior. We find that the execution of standard relative strength strategies requires large trading costs because of the type and frequency of securities traded such that trading costs prevent profitable relative strength investing. In the cross section, we find evidence that trading costs provide binding constraints to relative strength strategy profits. Relative strength returns are localized among low-price, poor performers and are increasing in investor transaction costs. We conclude that the delay in price adjustment for security returns simply reflects the costs of arbitrage--creating an illusion of anomalous price behavior and momentum trading profit opportunity when, in fact, none exists. Lesmond can be reached at 504-865-5665 or dlesmond@mailhost.tcs.tulane.edu. Schill can be reached at

The consistency of positive past returns and tax-loss selling significantly affects the relation between past returns and the cross-section of expected returns. Analysis of these additional effects across stock characteristics, seasons, and tax regimes provides clues about the sources of temporal relations in stock returns, pointing to potential explanations for this relation. A parsimonious trading rule generates surprisingly large economic returns despite controls for confounding sources of return premia, microstructure effects, and data snooping biases. JEL classification: G11; G12; G14

Investors may be able to benefit from equity style management. We find that three company characteristics—market value of equity, book-to-market ratio, and dividend yield-capture stylerelated trends in equity returns. We study all firms in the Standard and Poor’s-500 index since 1976. Strategies that buy stocks with characteristics that are currently in favor (past winners) and that sell stocks with characteristics that are out-of-favor (past losers) perform well for periods up to 1 year and possibly longer. Style momentum in equity returns is an empirical phenomenon that is distinct from price and industry momentum. D 2004 Elsevier B.V. All rights reserved. Keywords: Style momentum; S&P-500 index; Equity Investment style is the single most important component of success in active equity portfolio management. The institutional investment community knows and appreciates this. 1 For example, much of the exceptional performance of the Fidelity Magellan Fund during the 1980s, under Peter Lynch, was achieved by judicious shifts in style, not by astute stock picking. 2 Many equity managers identify themselves as following a particular style. Consider, e.g., the proliferation of style indexes and the Morningstar style box. Assets in a style