Economic Policy Uncertainty and Momentum

Gu, Ming; Sun, Minxing; Wu, Yangru; Xu, Weike

doi:10.2139/ssrn.3133832

Cited by 7 publications

(10 citation statements)

References 32 publications

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“…Antoniou et al (2013) find that investor sentiment explains momentum returns. Other studies, such as Wang and Xu (2015), Avramov et al (2016), and Gu et al (2020), suggest that market volatility, liquidity, and EPU are important drivers of momentum profits. In this subsection, we investigate whether the managed momentum in commodity markets can be explained by the factors documented in the literature.…”

Section: Understanding Profitabilitymentioning

confidence: 93%

Managing volatility in commodity momentum

Wang

2021

Journal of Futures Markets

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We empirically investigate the effect of managing volatility in commodity momentum. Using Chinese commodity futures data, we show that managing volatility significantly improves the performance of commodity momentum. Including the new strategy significantly enhances asset allocation performance. Then, we explore several potential explanations for the profitability of the new strategy. Commodity‐specific factors, business cycle risk, financial market conditions, investor sentiments, transaction costs, leverage constraints, and data‐snooping bias do not fully account for this profitability. The profitability is in line with the predictability of momentum‐specific risk rather than aggregate market risk. Comprehensive robustness checks support our main findings.

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Section: Understanding Profitabilitymentioning

confidence: 93%

Managing volatility in commodity momentum

Wang

2021

Journal of Futures Markets

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“…They demonstrate that uncertainty commands an equity risk premium, especially during weaker economic conditions. Others have linked EPU with the effectiveness of monetary policy (Aastveit, Natvik, & Sola, 2013), economic recessions (Stock & Watson, 2012), merger and acquisition activities (Bonaime, Gulen, & Ion, 2018;Nguyen & Phan, 2017), aggregate bank credit growth (Bordo et al, 2016), bank liquidity creation (Berger, Guedhami, Kim, & Li, 2017), daily jumps in stock and bond markets (Baker, Bloom, & Davis, 2015), gold futures market volatility (Fang, Chen, Yu, & Qian, 2017), corporate credit spreads (Kaviani, Kryzanowski, Maleki, & Savor, 2017), mutual fund flow-performance sensitivity (Starks & Sun, 2016), the time series predictability of momentum profits (Gu, Sun, Wu, & Xu, 2016), and stock market participation (Agarwal, Aslan, & Ren, 2017). Brogaard and Detzel (2015) find that policy uncertainty positively forecasts the equity risk premium and argue that EPU is an economically important risk factor for equities.…”

Section: Effects Of Epu On Financial Marketsmentioning

confidence: 99%

Economic policy uncertainty, CDS spreads, and CDS liquidity provision

Wang

Zhong

2018

Journal of Futures Markets

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Using a news‐based index of economic policy uncertainty (EPU), we find that EPU is positively associated with credit default swap (CDS) spreads and negatively associated with the number of liquidity providers in the CDS market. A 10% increase in EPU leads to an 8.4% increase in CDS spreads and a 4.0% decrease in the number of liquidity providers. Furthermore, the effects of EPU are persistent and robust after controlling for macroeconomic variables. Our results are also robust to different econometric methodologies. Overall, our findings suggest that, when EPU is high, investors find credit protection more costly and difficult to purchase.

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“…Market liquidity VSPC 0.44*** − 0.33*** 0.19*** Economic policy uncertainty − 0.41*** − 0.08 Consumer confidence − 0.01 momentum returns by Gu et al (2018). Table 4 reports the pairwise correlations of VSPC with the economic policy uncertainty index of Baker et al (2016), the U.S. consumer confidence index, and the aggregate stock market liquidity measure of Pástor and Stambaugh (2003).…”

Section: Consumer Confidencementioning

confidence: 99%

Another look at value and momentum: volatility spillovers

Grobys

Vähämaa

2020

Rev Quant Finan Acc

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This paper examines volatility interdependencies between value and momentum returns. Using U.S. data over the period 1926-2015, we document persistent periods of low and high volatility spillovers between value and momentum strategies. Moreover, we find that the intensity of the volatility spillovers may change substantially in very short periods of time and that these shifts in spillover intensity can be linked to prominent economic events and financial market turmoil. Our results further demonstrate that value returns increase and momentum returns decrease monotonically with increasing volatility spillovers between the two strategies. Given this linkage between spillover intensity and returns, we propose a simple trading strategy which utilizes a volatility spillover index for allocating funds between value and momentum portfolios. The proposed trading strategy outperforms value and momentum strategies and generates payoffs that are not subject to option-like behavior.Keywords Asset pricing · Value effect · Momentum effect · Volatility spillovers · Volatility spillover index JEL Classification G11 · G12 · G14

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Economic Policy Uncertainty and Momentum

Cited by 7 publications

References 32 publications

Managing volatility in commodity momentum

Managing volatility in commodity momentum

Economic policy uncertainty, CDS spreads, and CDS liquidity provision

Another look at value and momentum: volatility spillovers

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