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.
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We thank Tri Vi Dang, Heiko Zuchel, and seminar participants at the University of Mannheim, the 9th ENTER Jamboree in Toulouse, the 29th Annual Meeting of the European Finance Association in Berlin, and the 9th Annual Meeting of the German Finance Association in Köln for valuable comments and insights. Financial Support from the Deutsche Forschungsgemeinschaft (DFG) is gratefully acknowledged.
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Glaser, M., Weber, M. Momentum and Turnover: Evidence from the German Stock Market. Schmalenbach Bus Rev 55, 108–135 (2003). https://doi.org/10.1007/BF03396669
- Asset Pricing
- Momentum Strategies
- Return Predictability
- Trading Volume