Momentum Profits, Factor Pricing, and Macroeconomic Risk

Liu, Laura Xiaolei; Zhang, Lu

doi:10.1093/rfs/hhn090

Cited by 346 publications

(118 citation statements)

References 63 publications

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“…A body of research debates the importance of industry or sectors in explaining momentum (Moskowitz andGrinblatt (1999, Grundy andMartin, 2001) and Liu and Zhang (2008). Moskowitz and Grinblatt (1999) document that once returns are adjusted for industry effects, momentum becomes significantly weaker.…”

Section: Unexplained Anomaliesmentioning

confidence: 99%

“…Moskowitz and Grinblatt (1999) document that once returns are adjusted for industry effects, momentum becomes significantly weaker. Liu and Zhang (2008) show that the growth rate of industrial production is a priced risk factor in asset pricing tests and explains more than half of momentum profits. Using the above argument we purport that stock momentum may be caused due to sector momentum.…”

Section: Unexplained Anomaliesmentioning

confidence: 99%

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A Search for Rational Sources of Stock Return Anomalies: Evidence from India

Sehgal¹,

Subramaniam²,

Morandière³

2012

IJEF

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In this paper we investigate the presence of the following asset pricing anomalies viz. size, value, momentum, liquidity, accruals, profitability and net stock issues in India. Size effect is the strongest with a difference of 4.4 % per month between small and big stock returns. A positive relationship is reported between accruals, stock issues and returns and a negative relation between profitability and returns which is in contrast to prior research. CAPM is unable to explain these anomalies with the exception of net stock issues. The Fama French (FF) model is able to capture value, profitability and accruals. While liquidity anomaly is explained by a liquid augmented FF model, the sector and earnings momentum factors do not contribute significantly towards explaining returns. Size and short term momentum are persistent and hence continue to pose challenge to rational asset pricing in India. Our findings shall be highly useful for investment analysts and portfolio managers. The research contributes to asset pricing literature especially for emerging markets.

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Section: Unexplained Anomaliesmentioning

confidence: 99%

Section: Unexplained Anomaliesmentioning

confidence: 99%

A Search for Rational Sources of Stock Return Anomalies: Evidence from India

Sehgal¹,

Subramaniam²,

Morandière³

2012

IJEF

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“…Contrarian trading strategies imply that past losers become future winners and vice versa (De Bondt & Thaler, 1985, 1987. Risk based explanations for momentum include past trading volume (Lee and Swaminathan (2000)), sectoral returns (Moskowitz and Grinblatt, 1999;Liu &Zhang, 2008)), macro economic factors (Chordia & Shivkumar, 2002), investor bias in processing information could also lead to momentum profits (Barberis, Shleifer & Vishny, 1998;Daniel, Hirshleifer & Subrahmanyam, 1998;Hong& Stein, 1999).Nevertheless, momentum remains a puzzle generating high risk adjusted returns and hence capturing the attention of investment managers. Risk based explanation for contrarian is that stocks that had low past returns (losers) tended to be smaller and relatively more distressed while those that had high past returns (winners) were bigger and relatively less distressed (Fama &French, 1995).…”

Section: 2mentioning

confidence: 99%

Profitability of Style based Investment Strategies: Evidence from India

Subramaniam

Sharma

Sehgal

2017

AJFA

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In this paper, we aim to identify profitable investment styles on the Indian stock market by using various combinations of important stock pricing anomalies consisting of. size, value, volume, profitability, earnings surprises, short term and long term prior returns. Using NSE200 stocks, three different investment styles viz. univariate, independent bivariate and (2015) model do not provide any incremental explanatory power over the three factor model, recommending the use of the latter as a baseline to evaluate investment strategies in India. The highest supernormal returns of 1.1% per month are obtained from combining attributes and employing the conditional bivariate investment strategy viz.E2L1 (earnings momentum-Liquidity), M2S1 (price momentum-size), E2M3 (earnings momentum-price momentum). The findings are pertinent to portfolio managers, financial regulators and other stakeholders.

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“…28 (2010), Black & McMillan (2002), Griffin, Ji, & Martin (2003), Liu & Zhang (2008); Mouselli, Michou, & Stark (2008), etc. .20168 (0.0000)*** * **Implies the significance at 1% level of significance, i.e.…”

Section: Figure 2: Time Series Probability Of Being In High and Low Vmentioning

confidence: 99%

Macroeconomic Determinants of Cyclical Variations in Value, Size and Momentum Premiums in the UK

Sarwar¹,

Mateus²,

Todorović³

2015

SSRN Journal

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The paper examines the asymmetries in size, value and momentum premiums over the economic cycles in the UK and their macroeconomic determinants. Using Markov switching approach we find clear evidence of cyclical variations of the three premiums, most noticeably variations in size premium. We associate Markov switching regime 1 with economic upturn and regime 2 with economic downturn. The macroeconomic indicators prompting such cyclicality the most are growth in industrial production, term structure, credit spread and money supply. Using forecast returns from our model and a trading strategy that alternates between size/style/momentum portfolios and risk-free rate, we show that exploiting cyclicality in premiums proves particularly profitable for portfolios featuring small cap stocks in recessions. JEL classification: G11, E32

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Momentum Profits, Factor Pricing, and Macroeconomic Risk

Cited by 346 publications

References 63 publications

A Search for Rational Sources of Stock Return Anomalies: Evidence from India

A Search for Rational Sources of Stock Return Anomalies: Evidence from India

Profitability of Style based Investment Strategies: Evidence from India

Macroeconomic Determinants of Cyclical Variations in Value, Size and Momentum Premiums in the UK

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