Profitability of Conditional vs. Unconditional Momentum Based Trading Rules

摘要

In this paper, we propose a momentum-based trading rule based on a conditional distribution of returns, and we apply this rule to a large number of U.S. stocks, over the period from January 1970 to December 2002, to evaluate the effectiveness of momentum driven trading rules. By comparing standard unconditional trading rules of monthly stock returns to our conditional trading rule, conditioned on specific technical indicators such as book-to-market ratio and various momentum indicators, our preliminary findings suggest that over the 32-year sample period, momentum variables do provide additional information for the formation of portfolios that consistently outperform portfolios constructed based on traditional momentum driven trading rules.