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Momentum Investing and Business Cycle Risk: Evidence from Pole to Pole

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Author Info
John M. Griffin (McCombs School of Business, The University of Texas at Austin)
Xiuqing Ji (Baruch College, The City University of New York)
J. Spencer Martin (W. P. Carey School of Business, Arizona State University)
Abstract

We examine whether macroeconomic risk can explain momentum profits internationally. Neither an unconditional model based on the Chen, Roll, and Ross (1986) factors nor a conditional forecasting model based on lagged instruments provides any evidence that macroeconomic risk variables can explain momentum. In addition, momentum profits around the world are economically large and statistically reliable in both good and bad economic states. Further, these momentum profits reverse over 1- to 5-year horizons, an action inconsistent with existing risk-based explanations of momentum. Copyright 2003 by the American Finance Association.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 58 (2003)
Issue (Month): 6 (December)
Pages: 2515-2547
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Handle: RePEc:bla:jfinan:v:58:y:2003:i:6:p:2515-2547

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  2. Hui Guo & Robert Savickas, 2003. "On the cross section of conditionally expected stock returns," Working Papers 2003-043, Federal Reserve Bank of St. Louis. [Downloadable!]
  3. Paul Gao & Kevin X.D. Huang, 2004. "Aggregate consumption-wealth ratio and the cross-section of stock returns: some international evidence," Research Working Paper RWP 04-07, Federal Reserve Bank of Kansas City. [Downloadable!]
  4. Hart, J. van der & Zwart, G.J. de & Dijk, D.J.C. van, 2005. "The Success Of Stock Selection Strategies In Emerging Markets: Is It Risk Or Behavioral Bias?," Research Paper ERS-2005-012-F&A Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  5. Yangru Wu, 2004. "Momentum Trading, Mean Reveral and Overration in Chinese Stock Market," Working Papers 232004, Hong Kong Institute for Monetary Research. [Downloadable!]
  6. Schmeling, Maik, 2008. "Investor sentiment and stock returns: Some international evidence," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-407, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
  7. Hou, Kewei & Peng, Lin & Xiong, Wei, 2006. "R2 and Price Inefficiency," Working Paper Series 2006-23, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
  8. Brozynski, Torsten & Menkhoff, Lukas & Schmidt, Ulrich, 2003. "The Use of Momentum, Contrarian and Buy-&-Hold Strategies: Survey Evidence from Fund Managers," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-290, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
  9. Menkhoff, Lukas & Schmidt, Ulrich, 2005. "The Use of Trading Strategies by Fund Managers: Some First Survey Evidence," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-314, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
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  10. Laura X.L. Liu & Jerold B. Warner & Lu Zhang, 2005. "Momentum Profits and Macroeconomic Risk," NBER Working Papers 11480, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Manuel Ammann & Michael Verhofen, 2006. "The Effect of Market Regimes on Style Allocation," Financial Markets and Portfolio Management, Springer, vol. 20(3), pages 309-337, September. [Downloadable!] (restricted)
  12. Carlos Forner & Sonia Sanabria & Joaquín Marhuenda, 2009. "Post-earnings announcement drift: Spanish evidence," Spanish Economic Review, Springer, vol. 11(3), pages 207-241, September. [Downloadable!] (restricted)
  13. Patricia Chelley-Steeley & Antonios Siganos, 2005. "Momentum Profits in Alternative Stock Market Structures," Money Macro and Finance (MMF) Research Group Conference 2005 63, Money Macro and Finance Research Group. [Downloadable!]
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