Momentum and downside risk

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We examine whether time-variation in the profitability of momentum strategies is related to variation in macroeconomic conditions. We find reliable evidence that the momentum strategy exposes investors to greater downside risk. Momentum strategies deliver economically large and statistically reliable negative profits in bad economic states when the expected market risk premium is high, whereas positive profits in good economic states when the expected market risk premium is low. Our results are robust to alternative constructions of momentum portfolios, out-of-sample estimation of the expected market risk premium, and after controlling for the January effect, lagged market return, and investor sentiment. (C) 2016 Elsevier B.V. All rights reserved.
Publisher
ELSEVIER SCIENCE BV
Issue Date
2016-11
Language
English
Article Type
Article
Keywords

ASSET PRICING MODEL; EXPECTED RETURNS; STOCK RETURNS; INVESTOR SENTIMENT; INFORMATION UNCERTAINTY; BUSINESS-CYCLE; CROSS-SECTION; MARKET; INFLATION; GROWTH

Citation

JOURNAL OF BANKING & FINANCE, v.72, pp.S104 - S118

ISSN
0378-4266
DOI
10.1016/j.jbankfin.2016.04.005
URI
http://hdl.handle.net/10203/220995
Appears in Collection
MT-Journal Papers(저널논문)
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