Edinburgh Napier University

  Previous studies in the field of the momentum effect have defined winner and loser portfolios only by using deciles, quintiles or triciles. This article overcomes this limitation by investigating the magnitude of momentum gains for various sizes of winner and loser portfolios. It is found that beyond the first few extreme winners and losers, there is a continuous decline of momentum gains for larger number of shares portfolios. Maximum momentum returns, at the magnitude of 2.09% per month, emerge when only the 40 top and bottom performing shares are employed. This study also shows that for large portfolios, it is not essential for investors to sell the loser portfolio short, since its influence on momentum returns is insignificant. Overall, this article supports the existence of the momentum effect and even shows that investors can take a better advantage of the continuation in share prices than previously reported.