Momentum? What momentum?

URL:	https://www.econstor.eu/bitstream/10419/226389/1/1...
Weitere URL:	http://hdl.handle.net/10419/226389
Dokumenttyp:	Arbeitspapier
Erscheinungsjahr:	2020
Band/Volume:	20-09
Ort der Veröffentlichung:	Köln
Verlag:	Universität Köln, Centre for Financial Research
Sprache der Veröffentlichung:	Englisch
Einrichtung:	Fakultät für Betriebswirtschaftslehre > ABWL u. Finanzierung (Theissen 2009-)
Fachgebiet:	330 Wirtschaft
Abstract:	Risk-adjusted momentum returns are usually estimated by constructing momentum portfolios and then running a full-sample regression of their returns on a set of factors (portfolio-level risk adjustment). This approach implicitly assumes constant factor exposure of the momentum portfolio. However, momentum portfolios are characterized by strong turnover and time-varying factor exposure. We propose to estimate the risk exposure at the stock-level. The risk-adjusted return of the momentum portfolio in month t then is the actual return minus the weighted average of the expected returns of the component stocks (stock-level risk adjustment). Based on evidence from the universe of CRSP stocks, from sub-periods and size-based sub-samples, from volatility-scaled momentum strategies (Barroso and Santa-Clara 2015) and from an international sample covering 22 developed countries we conclude that the momentum effect may be much weaker than previously thought.