The strong bias in favor of domestic securities is a well-documented characteristic of international investment portfolios, yet we show that the preference for investing close to home also applies to portfolios of domestic stocks. Specifically, U.S. investment managers exhibit a strong preference for locally headquartered firms, particularly small, highly levered firms that produce nontraded goods. These results suggest that asymmetric information between local and nonlocal investors may drive the preference for geographically proximate investments, and the relation between investment proximity and firm size and leverage may shed light on several well-documented asset pricing anomalies.

We find consistent value and momentum return premia across eight diverse markets and asset classes, and a strong common factor structure among their returns. Value and momentum returns correlate more strongly across asset classes than passive exposures to the asset classes, but value and momentum are negatively correlated with each other, both within and across asset classes. Our results indicate the presence of common global risks that we characterize with a three-factor model. Global funding liquidity risk is a partial source of these patterns, which are identifiable only when examining value and momentum jointly across markets. Our findings present a challenge to existing behavioral, institutional, and rational asset pricing theories that largely focus on U.S. equities.TWO OF THE MOST studied capital market phenomena are the relation between an asset's return and the ratio of its "long-run" (or book) value relative to its current market value, termed the "value" effect, and the relation between an asset's return and its recent relative performance history, termed the "momentum" effect. The returns to value and momentum strategies have become central to the market efficiency debate and the focal points of asset pricing studies, generating numerous competing theories for their existence. We offer new insights into these two market anomalies by examining their returns jointly across eight diverse markets and asset classes. We find significant return premia to value and momentum in every asset class and strong comovement of their returns across asset classes, both of which challenge existing theories for their existence. We provide a simple three-factor model that captures the global returns across asset classes, the Fama-French U.S. stock portfolios, and a set of hedge fund indices.

This paper documents a strong and prevalent momentum effect in industry components of stock returns which accounts for much of the individual stock momentum anomaly. Specifically, momentum investment strategies, which buy past winning stocks and sell past losing stocks, are significantly less profitable once we control for industry momentum. By contrast, industry momentum investment strategies, which buy stocks from past winning industries and sell stocks from past losing industries, appear highly profitable, even after controlling for size, book-to-market equity, individual stock momentum, the cross-sectional dispersion in mean returns, and potential microstructure inf luences. BOTH INVESTMENT THEORY AND ITS APPLICATION to investment management critically depend on our field's understanding of stock return persistence anomalies. Determining whether these anomalies are rooted in behavior that can be exploited by more rational investors at low risk has profound implications for our view of market efficiency and optimal investment policy. The ability to outperform buy-and-hold strategies by acquiring past winning stocks and selling past losing stocks, commonly referred to as "individual stock momentum," remains one of the most puzzling of these anomalies, both because of its magnitude~up to 12 percent abnormal return per dollar long on a self-financing strategy per year! and because of the peculiar horizon pattern that it seems to follow: Trading based on individual stock momentum appears to be a poor strategy when using a short historical horizon for portfolio formation~especially less than one month!; it is highly 1249 profitable at intermediate horizons~up to 24 months, although it is strongest in the 6-to 12-month range!; and is once again a poor strategy at long horizons. 1 This paper largely focuses on the positive persistence in stock returns~or momentum effect! over intermediate investment horizons~6 to 12 months! and explores various explanations for its existence. We identify industry momentum as the source of much of the momentum trading profits at these horizons. Specifically, we find strong evidence that persistence in industry return components generates significant profits that may account for much of the profitability of individual stock momentum strategies. We show the following evidence:• Industry portfolios exhibit significant momentum, even after controlling for size, book-to-market equity~BE0ME!, individual stock momentum, the cross-sectional dispersion in mean returns, and potential microstructure inf luences. • Once returns are adjusted for industry effects, momentum profits from individual equities are significantly weaker and, for the most part, are statistically insignificant. • Industry momentum strategies are more profitable than individual stock momentum strategies. • Industry momentum strategies are robust to various specifications and methodologies, and they appear to be profitable even among the largest, most liquid stocks. • Profitability of industry strategies over intermediate h...

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