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Constrained Momentum Investment

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  • Marcus Davidsson

Abstract

The previous literature on momentum investments has only considered the so called unconstrained momentum return. This paper will investigate budget constrained momentum returns by using two different datasets. The conclusion is that unconstrained momentum returns systematically overestimate the positive returns and underestimates the negative returns. This has not previously been understood. Such a result has important implications for applied portfolio investments and the attractiveness of such strategy.

Suggested Citation

  • Marcus Davidsson, 2012. "Constrained Momentum Investment," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 3(2), pages 69-77, April.
    • Handle: RePEc:jfr:ijfr11:v:3:y:2012:i:2:p:69-77
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    File URL: http://www.sciedu.ca/journal/index.php/ijfr/article/view/976
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    References listed on IDEAS

    as
    1. Harrison Hong & Terence Lim & Jeremy C. Stein, 2000. "Bad News Travels Slowly: Size, Analyst Coverage, and the Profitability of Momentum Strategies," Journal of Finance, American Finance Association, vol. 55(1), pages 265-295, February.
    2. De Long, J Bradford, et al, 1990. "Positive Feedback Investment Strategies and Destabilizing Rational Speculation," Journal of Finance, American Finance Association, vol. 45(2), pages 379-395, June.
    3. Weimin Lui & Norman Strong & Xinzhong Xu, 1999. "The Profitability of Momentum Investing," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(9-10), pages 1043-1091.
    4. Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
    5. repec:bla:jfinan:v:59:y:2004:i:5:p:2145-2176 is not listed on IDEAS
    6. repec:bla:jfinan:v:53:y:1998:i:1:p:267-284 is not listed on IDEAS
    7. Weimin Lui & Norman Strong & Xinzhong Xu, 1999. "The Profitability of Momentum Investing," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(9‐10), pages 1043-1091, November.
    Full references (including those not matched with items on IDEAS)

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