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Momentum and Turnover: Evidence from the German Stock Market

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  • Markus Glaser
  • Martin Weber

Abstract

This paper analyzes the relation between momentum strategies (strategies that buy stocks with high returns over the previous three to twelve months and sell stocks with low returns over the same period) and turnover (number of shares traded divided by the number of shares outstanding) for the German stock market. Our main finding is that momentum strategies are more profitable among high turnover stocks. In contrast to U.S. evidence, this result is mainly driven by winners: high-turnover winners have higher returns than low-turnover winners. We present various robustness checks, long horizon results, evidence on seasonality, and control for size-, book-to-market-, and industry-effects. We argue that our results are useful to empirically evaluate competing explanations for the momentum effect.

Suggested Citation

  • Markus Glaser & Martin Weber, 2003. "Momentum and Turnover: Evidence from the German Stock Market," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 55(2), pages 108-135, April.
  • Handle: RePEc:sbr:abstra:v:55:y:2003:i:2:p:108-135
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    Cited by:

    1. Tim A. Herberger & Matthias Horn & Andreas Oehler, 2020. "Are intraday reversal and momentum trading strategies feasible? An analysis for German blue chip stocks," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 34(2), pages 179-197, June.
    2. Marie-Hélène Broihanne & Maxime Merli & Patrick Roger, 2008. "A Behavioural Approach To Financial Puzzles," Working Papers of LaRGE Research Center 2008-01, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    3. Alexander Franck & Andreas Walter & Johannes Witt, 2013. "Momentum strategies of German mutual funds," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 27(3), pages 307-332, September.
    4. Tim Herberger & Daniel Kohlert & Andreas Oehler, 2011. "Momentum and industry-dependence: An analysis of the Swiss stock market," Journal of Asset Management, Palgrave Macmillan, vol. 11(6), pages 391-400, February.
    5. Philipp Dirkx & Franziska J. Peter, 2020. "The Fama-French Five-Factor Model Plus Momentum: Evidence for the German Market," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 72(4), pages 661-684, October.
    6. Han-Ching Huang & Bo-Sheng Wu, 2020. "The Performance of Trading Strategies based on the Ratio of Option and Stock Volume," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(4), pages 1-9.
    7. Martin H. Schmidt, 2017. "Trading strategies based on past returns: evidence from Germany," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 31(2), pages 201-256, May.
    8. Luis Muga & Rafael Santamaría, 2009. "Momentum, market states and investor behavior," Empirical Economics, Springer, vol. 37(1), pages 105-130, September.
    9. Glaser, Markus & Nöth, Markus & Weber, Martin, 2003. "Behavioral Finance," Sonderforschungsbereich 504 Publications 03-14, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    10. Markus Glaser & Thomas Langer & Martin Weber, 2007. "On the Trend Recognition and Forecasting Ability of Professional Traders," Decision Analysis, INFORMS, vol. 4(4), pages 176-193, December.
    11. Amir Amel†Zadeh, 2011. "The Return of the Size Anomaly: Evidence from the German Stock Market," European Financial Management, European Financial Management Association, vol. 17(1), pages 145-182, January.
    12. Yu-Nan Tai, 2014. "Investor Overreaction in Asian and US Stock Markets: Evidence from the 2008 Financial Crisis," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 8(3), pages 71-93.
    13. Swanson, Peggy E. & Lin, Anchor Y., 2005. "Trading behavior and investment performance of U.S. investors in global equity markets," Journal of Multinational Financial Management, Elsevier, vol. 15(2), pages 99-115, April.
    14. Christian Fieberg & Armin Varmaz & Thorsten Poddig, 2016. "Covariances vs. characteristics: what does explain the cross section of the German stock market returns?," Business Research, Springer;German Academic Association for Business Research, vol. 9(1), pages 27-50, April.

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    More about this item

    Keywords

    Asset Pricing; Momentum; Momentum Strategies; Return Predictability; Turnover; Trading Volume.;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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