Can monthly-return rank order reveal a hidden dimension of momentum? The post-cost evidence from the U.S. stock markets

Eero Pätäri, Sheraz Ahmed, Pasi Luukka and Julian Scott Yeomans

The North American Journal of Economics and Finance, 2023, vol. 65, issue C

Abstract: We introduce a new return-momentum indicator that is based on monotonicity of monthly-return rank order within a lookback period (henceforth abbreviated as MRRO). Based on an extensive post-cost performance comparison of long-only momentum portfolios formed on six stand-alone and 36 double-sort criteria across three holding period lengths in the non-microcap universe of U.S. stocks over the 55-year sample period, MRRO is particularly useful for annual holding periods, towards the end of whom the conventional return-momentum indicators tend to lose their prediction power. Based on the return-based style analysis, MRRO adds some favorable style-diversification characteristics into long-only momentum portfolio selection.

Keywords: Momentum; Anomaly; Cost mitigation; Trading costs; Post-cost performance; Portfolio management (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:65:y:2023:i:c:s1062940823000074

DOI: 10.1016/j.najef.2023.101884

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