NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Benjamin R. Chabot

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December 2009Momentum 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 2008Price 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.

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

 
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