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Momentum profits and macroeconomic factors

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Author Info
Patricia Chelley-steeley
Antonios Siganos

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Abstract

This article tests whether macroeconomic variables and market sentiment influence the size of momentum profits. It finds that although returns to the winner and loser portfolios are influenced by a range of macroeconomic and market wide variables; momentum profits are influenced only by the scale of portfolio outflows. Thus, when investors are sending their capital elsewhere, reduced funds at home, dampen the profitability of the momentum trading strategy. It also finds that when the market closes, below its opening level in the previous six months, momentum profits are higher, which might be a reflection of mean reversion in the market.

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File URL: http://taylorandfrancis.metapress.com/link.asp?target=contribution&id=DYUGUL7620BPBEUD
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Publisher Info
Article provided by Taylor and Francis Journals in its journal Applied Economics Letters.

Volume (Year): 11 (2004)
Issue (Month): 7 (June)
Pages: 433-436
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Handle: RePEc:taf:apeclt:v:11:y:2004:i:7:p:433-436

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  1. K. Geert Rouwenhorst, 1998. "International Momentum Strategies," Journal of Finance, American Finance Association, vol. 53(1), pages 267-284, 02. [Downloadable!] (restricted)
    Other versions:
  2. Harrison Hong & Terence Lim & Jeremy C. Stein, 1998. "Bad News Travels Slowly: Size, Analyst Coverage and the Profitability of Momentum Strategies," NBER Working Papers 6553, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July. [Downloadable!] (restricted)
  4. Nelson, Charles R, 1976. "Inflation and Rates of Return on Common Stocks," Journal of Finance, American Finance Association, vol. 31(2), pages 471-83, May. [Downloadable!] (restricted)
  5. Tobias J. Moskowitz & Mark Grinblatt, . "Do Industries Explain Momentum?," CRSP working papers 480, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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  6. Nicholas Barberis & Andrei Shleifer & Robert W. Vishny, 1997. "A Model of Investor Sentiment," NBER Working Papers 5926, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Harrison Hong & Jeremy C. Stein, 1997. "A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets," NBER Working Papers 6324, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Chan, Louis K C & Jegadeesh, Narasimhan & Lakonishok, Josef, 1996. " Momentum Strategies," Journal of Finance, American Finance Association, vol. 51(5), pages 1681-1713, December. [Downloadable!] (restricted)
  9. Hon, Mark T. & Tonks, Ian, 2003. "Momentum in the UK stock market," Journal of Multinational Financial Management, Elsevier, vol. 13(1), pages 43-70, February. [Downloadable!] (restricted)
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  10. Alan Gregory & Richard D.F. Harris & Maria Michou, 2001. "An Analysis of Contrarian Investment Strategies in the UK," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 28(9&10), pages 1192-1228. [Downloadable!] (restricted)
  11. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March. [Downloadable!] (restricted)
  12. Fama, Eugene F. & French, Kenneth R., 1989. "Business conditions and expected returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 25(1), pages 23-49, November. [Downloadable!] (restricted)
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