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On the interaction between momentum effect and size effect

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  • Alhenawi, Yasser

Abstract

This paper uses a sample of firms listed in the NYSE, AMEX, and NASDAQ between January 1963 and December 2012 to analyze the interaction between size effect and momentum effect in cross-sectional stock returns. Furthermore, this paper focuses on the evolution of this interaction through different market states. I report a significant shift in stock returns structure during the rising markets of the 1990s and the 2000s. First, momentum has absorbed the size effect. Second, the momentum effect has become stronger in larger, not smaller, firms. These patterns are indicative of a strong interaction between the two effects. Conceivably, in up markets, firms grow fast, and thus, the size and momentum effects stem from a common economic phenomenon: growth. The findings are robust to variations in the length of the formation period and to the use of residual return (instead of total return) to rank stocks.

Suggested Citation

  • Alhenawi, Yasser, 2015. "On the interaction between momentum effect and size effect," Review of Financial Economics, Elsevier, vol. 26(C), pages 36-46.
    • Handle: RePEc:eee:revfin:v:26:y:2015:i:c:p:36-46
    DOI: 10.1016/j.rfe.2015.03.005
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    Cited by:

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    2. Hofmann, Daniel & Keiber, Karl Ludwig & Luczak, Adalbert, 2022. "Up and down together? On the linkage of momentum and reversal," Global Finance Journal, Elsevier, vol. 54(C).
    3. Yamani, Ehab, 2023. "Return–volume nexus in financial markets: A survey of research," Research in International Business and Finance, Elsevier, vol. 65(C).

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    More about this item

    Keywords

    Momentum; Size; Asset pricing; Risk factors;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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