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Momentum and Turnover: Evidence from the German Stock Market

Last Updated on 10 February, 2024 by Rejaul Karim

In this paper, “Momentum and Turnover: Evidence from the German Stock Market,” Markus Glaser of Ludwig Maximilian University and Martin Weber from the University of Mannheim delve into the relationship between momentum strategies and turnover in the German stock market.

Unlike findings in the US market, this study reveals that momentum strategies prove more profitable among high-turnover stocks in Germany. Notably, the profitability is driven primarily by high-turnover winners, which exhibit superior returns compared to their low-turnover counterparts.

The research includes robustness checks, long-horizon results, seasonality insights, and controls for size, book-to-market, and industry effects. The authors argue that these results offer valuable empirical insights for evaluating competing explanations for the momentum effect in the German stock market.

Abstract Of Paper

This Paper analyses the relation between momentum strategies (strategies that buy stocks with high returns over the previous three to 12 months and sell stocks with low returns over the same period) and turnover (number of shares traded divided by the number of shares outstanding) for the German stock market. Our main finding is that momentum strategies are more profitable among high-turnover stocks. In contrast to US evidence, this result is driven mainly by winners: high-turnover winners have higher returns than low-turnover winners. We present various robustness checks, long-horizon results, evidence on seasonality, and control for size-, book-to-market-, and industry-effects. We argue that our results are useful to empirically evaluate competing explanations for the momentum effect.

Original paper – Download PDF

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Author

Markus Glaser
Ludwig Maximilian University of Munich (LMU) – Faculty of Business Administration (Munich School of Management)

Martin Weber
University of Mannheim – Department of Banking and Finance

Conclusion

In this analysis of momentum strategies on the German stock market, Markus Glaser and Martin Weber illuminate a significant correlation between momentum and turnover.

In contrast to U.S. observations, the study indicates that momentum strategies are more lucrative among high-turnover stocks, particularly driven by high-turnover winners displaying superior returns compared to their low-turnover counterparts.

Robustness checks, extended horizon results, seasonal considerations, and meticulous control for size, book-to-market, and industry effects underscore the reliability of these findings.

This empirical evidence not only fortifies the momentum effect but also offers valuable insights for assessing competing explanations within asset pricing and return predictability in the German stock market.

Related Reading:

Price Momentum and Trading Volume

Trading Volume and Momentum: The International Evidence

FAQ

– What is the primary focus of the research paper “Momentum and Turnover: Evidence from the German Stock Market”?

The research paper by Markus Glaser and Martin Weber explores the relationship between momentum strategies and turnover in the German stock market. Unlike findings in the US market, the study specifically investigates the profitability of momentum strategies among high-turnover stocks in Germany.

– What unique insights does the study provide regarding the profitability of momentum strategies in the German stock market?

Contrary to U.S. evidence, the study reveals that momentum strategies are more profitable among high-turnover stocks in the German market. Notably, the profitability is driven mainly by high-turnover winners, indicating that stocks with superior returns and high turnover outperform their low-turnover counterparts. The authors support their findings with robustness checks, long-horizon results, insights into seasonality, and meticulous controls for various factors, such as size, book-to-market, and industry effects.

– How do the research findings contribute to understanding the momentum effect in the German stock market, and what implications do they have for asset pricing and return predictability?

The empirical evidence from the study not only strengthens the momentum effect in the German stock market but also provides valuable insights for evaluating competing explanations within asset pricing and return predictability. The unique observations regarding the profitability of momentum strategies among high-turnover stocks challenge conventional wisdom and offer a nuanced perspective on market dynamics specific to Germany.

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