Can small investors exploit the momentum effect?

Siganos, Antonios

Abstract

This study uses UK data and investigates whether small investors can exploit the continuation effect in share prices. Individual traders are not in a financial position to buy and sell short hundreds of firms, as suggested by existing academic research, and thus this study uses extreme performance companies to implement the strategy. We find that strong momentum gains appear when extreme winners and losers are employed. These returns remain strong even after considering the transaction costs of implementing such strategies, including commissions, stamp duty, selling-short costs, and bid-ask spread. Overall, we show that a relatively large number of small investors can enjoy momentum gains, providing some evidence against stock market efficiency.

Citation

Siganos, A. (2010). Can small investors exploit the momentum effect?. Financial Markets and Portfolio Management, 24(2), 171-192. https://doi.org/10.1007/s11408-009-0120-3

• Journal Article Type: Article
• Online Publication Date: Dec 22, 2009
• Publication Date: 2010-06
• Deposit Date: Jul 6, 2021
• Journal: Financial Markets and Portfolio Management
• Print ISSN: 1555-4961
• Electronic ISSN: 1555-497X
• Publisher: Springer
• Peer Reviewed: Peer Reviewed
• Volume: 24
• Issue: 2
• Pages: 171-192
• DOI: https://doi.org/10.1007/s11408-009-0120-3
• Keywords: Stock market efficiency, Momentum effect, Transaction cost
• Public URL: http://researchrepository.napier.ac.uk/Output/2785086