Empirical Study on Price Momentum Strategy for Long, Short, and Long/Short Equity Portfolios

Abstract

The authors start by observing that the optimal holding periods for long, short, and long/short equity portfolios must vary with transaction costs. The optimal holding period ranges from six to nine months, depending upon the type of portfolios being considered. Optimal efficiency occurs in portfolios containing between 20 and 80 securities, while efficiency is compromised in portfolios consisting of more than 100 stocks. They show that adjusted short and long/short equity portfolios' returns exhibit graphical patterns similar to the ones in the original short and long/short equity portfolios; however, these adjusted portfolio returns are amplified.