Momentum? What momentum?

Theissen, Erik ; Yilanci, Can

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Document Type: Working paper
Year of publication: 2020
The title of a journal, publication series: CFR Working Paper
Volume: 20-09
Place of publication: Köln
Publishing house: Universität Köln, Centre for Financial Research
Publication language: English
Institution: Business School > ABWL u. Finanzierung (Theissen)
Subject: 330 Economics
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.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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ORCID: Theissen, Erik ORCID: 0000-0003-4460-8168 ; Yilanci, Can

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