Momentum? What Momentum?

Theissen, Erik ; Yilanci, Can

Document Type: Conference presentation
Year of publication: 2021
Conference title: 37th International Conference of the French Finance Association (AFFI)
Location of the conference venue: Online
Date of the conference: 26.-28.05.2021
Publication language: English
Institution: Business School > ABWL u. Finanzierung (Theissen)
Subject: 330 Economics
Abstract: Risk-adjusted momentum returns are usually estimated by sorting stocks into a regularly rebalanced long-short portfolio based on their prior return and then running a full-sample regression of the portfolio 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 high 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 momentum returns conditional on market states, from volatility-scaled momentum strategies (Barroso and Santa-Clara 2015), from sub-periods and size-based sub-samples, and from an international sample covering 20 developed countries, we conclude that the momentum effect may be much weaker than previously thought.

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BASE: Theissen, Erik ; Yilanci, Can

Google Scholar: Theissen, Erik ; Yilanci, Can

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

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