Buy-Side Competition and Momentum Profits

Hoberg, G and Kumar, N and Prabhala, N (2018) Buy-Side Competition and Momentum Profits. Working Paper. SSRN.

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We show that a new measure of buy-side competition explains momentum profits. The monthly momentum spread is 1.39% when the competition is low and negligible when the competition is high. Better alphas are attained with superior Sharpe and Sortino ratios, less negative skewness and in more investible strategies featuring value-weighted portfolios and large stocks. Stock characteristics traditionally related to momentum do not explain our results. Evidence on long-term returns and the differences in trading patterns between similar-style funds and retail investors suggests that slow information diffusion and trend-chasing explain momentum and its reversal in low competition markets.

Item Type: Monograph (Working Paper)
Subjects: Finance
Date Deposited: 08 Jun 2019 12:14
Last Modified: 08 Jun 2019 12:14

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