Financial Markets and Portfolio Management

, Volume 31, Issue 2, pp 201–256 | Cite as

Trading strategies based on past returns: evidence from Germany

  • Martin H. Schmidt


Among the various strategies studied in this paper, only momentum investing appears to earn persistently nonzero returns: From 1965 to 2014, the classical momentum strategy based on performance over the previous 2–12 months earned an average return of 1.57% per month (excluding microcap stocks and value-weighted returns). In the most recent 10-year period, this return was even larger—2.27%—which is much larger than in the USA. However, profitability net of transaction costs is weak because the strategy involves trading in disproportionately small stocks with high transaction costs, something that is particularly true for the loser portfolio. A strategy that concentrates only on the winner portfolio and thus avoids potential problems associated with (short) selling the costly loser portfolio appears to earn strong and persistently abnormal profits, even after transaction costs.


Momentum Stock reversal Contrarian Transaction costs Predictability 

JEL Classification

G11 G12 



I am grateful for the valuable comments received from Richard Stehle, Joachim Gassen, an anonymous referee, and seminar participants at University of Potsdam and Humboldt University. Datastream data were obtained through the RDC of CRC 649 “Economic Risk” at Humboldt University Berlin.


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© Swiss Society for Financial Market Research 2017

Authors and Affiliations

  1. 1.School of Business and EconomicsHumboldt University BerlinBerlinGermany

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