Cass Business School, City University, 106 Bunhill Row, London EC1Y 8TZ, UK Tel: +44 (0)20 7040 8633; Fax: +44 (0)20 7040 8881; e-mail: d.c.thomas@city.ac.uk

Received 4 November 2003.

Abstract

This study shows that, in the period 1990–2003, zero-cost portfolios comprising companies from the FTSE 350 index exhibited medium-term return momentum. The returns of simple momentum strategies during this volatile period tend to be greater than other studies have suggested, at around 1.4 per cent per month. Return momentum is stronger in those portfolios that have high trading volume during the formation period. Although transaction costs for momentum strategies are markedly higher than previous studies have suggested, momentum returns still exist. There is no evidence to suggest that the momentum returns are generated by holding excess systematic risk. Momentum strategies instituted during or shortly after periods of market stress, however, yield negative returns.