Are momentum profits robust to trading costs?

Robert A. Korajczyk, Ronnie Sadka

Research output: Contribution to journalArticlepeer-review

320 Scopus citations


We test whether momentum strategies remain profitable after considering market frictions induced by trading. Intraday data are used to estimate alternative measures of proportional and non-proportional (price impact) trading costs. The price impact models imply that abnormal returns to portfolio strategies decline with portfolio size. We calculate break-even fund sizes that lead to zero abnormal returns. In addition to equal- and value-weighted momentum strategies, we derive a liquidity-weighted strategy designed to reduce the cost of trades. Equal-weighted strategies perform the best before trading costs and the worst after trading costs. Liquidity-weighted and hybrid liquidity/value-weighted strategies have the largest break-even fund sizes: $5 billion or more (relative to December 1999 market capitalization) may be invested in these momentum strategies before the apparent profit opportunities vanish.

Original languageEnglish (US)
Pages (from-to)1039-1082
Number of pages44
JournalJournal of Finance
Issue number3
StatePublished - Jun 2004

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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