On style momentum strategies

Ferdi Aarts and Thorsten Lehnert

Applied Economics Letters, 2005, vol. 12, issue 13, 795-799

Abstract: Barberis and Shleifer (2003) suggest that US investors classify assets into different styles based on, for example, market capitalization or B/M ratios. They find that prices can deviate substantially from fundamental values as a style's popularity changes over time. In this paper, we discuss implications of this prediction and empirically investigate the profitability of style momentum strategies for the UK stock market. Results suggest that a simple trading rule can generate significant positive returns, but for our sample of FTSE 350 stocks those strategies are less profitable and more risky compared to regular momentum strategies.

Date: 2005
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DOI: 10.1080/13504850500373602

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