Benjamin R. Chabot
Department of Economics
27 Hillhouse Ave, Rm 33
New Haven, CT 06520
Tel: (203) 432-3566
Institutional Affiliation: Yale University
NBER Working Papers and Publications
|December 2009||Momentum Cycles and Limits to Arbitrage Evidence from Victorian England and Post-Depression US Stock Markets|
with Eric Ghysels, Ravi Jagannathan: w15591
We evaluate the importance of "Limits to Arbitrage" to explain profitability of momentum strategies. Specifically, when the availability of arbitrage capital is in short supply, momentum cycles last longer, and breaks in momentum cycles are shorter. We demonstrate the robustness of our findings with a unique database of stock returns from1866-1907 London and the CRSP database. Momentum cycle durations are similar in both databases and all other momentum facts documented in the literature using the CRSP database hold for the Victorian period as well, except for the January reversal due to the absence of capital gains taxation.
|November 2008||Price Momentum In Stocks: Insights From Victorian Age Data|
with Eric Ghysels, Ravi Jagannathan: w14500
We find that price momentum in stocks was a pervasive phenomenon during the Victorian age (1866-1907) as well. Momentum strategy profits have little systematic risk even at business cycle frequencies; disappear periodically only to reappear later; exhibit long run reversal; and are higher following up markets, suggesting limited availability of arbitrage capital relative to opportunities during those times. Since there were no capital gains taxes during the Victorian age, the long run reversal of momentum profits must have a fundamental component, that is unrelated to tax based trading, identified by Grinblatt and Moskowitz (2004) using CRSP era data.