After factoring in transaction costs and risks, the highest returns and monthly alphas are obtained by buying the top five to eight of the top performing stocks of the previous six-month holding period.
Correlation among CTAs is generally high but this correlation becomes weaker when there are opportunities to capture momentum premiums. The dispersion in performance widens when correlation breaks down.
To test for crowding effects of Absolute Momentum strategies employed by CTAs, the author explored and found significant returns for Absolute Momentum strategies during "turn of the month" days. The hypothesis is that during such days, CTAs would have to trade up their positions to put their new inflows to work in markets, temporarily pushing prices in their favour.