MOMENTUM IN CANADIAN STOCK RETURNS

Empirical evidence suggests that U.S. and Canadian stock returns follo w predictable patterns over a short-term horizon. In particular; abnor mal profits could have been generated by purchasing previous strong pe rformers and selling previous poor performers. Our evidence suggests t hat a portion of this profitability represents appropriate compensatio n for risk and risk premiums that vary through time. We also examine t he impact of transactions costs on the implementation of this strategy and find it may nor be exploitable by the average retail investor fac ing higher levels of transactions costs. However sensitivity analysis indicates that momentum trading may have merit for more nimble traders facing lower transactions costs.