Investment-Based Momentum Profits
AbstractWe offer an investment-based explanation of momentum. The neoclassical theory of investment implies that expected stock returns are related to expected investment returns, defined as the next-period marginal benefits of investment divided by the current-period marginal costs of investment. Empirically, winners have higher expected growth of investment-to-capital and higher expected marginal product of capital and consequently higher expected stock returns than losers. The investment-based expected return model captures well the momentum profits across a wide array of momentum portfolios. However, the individual alphas for several testing portfolios are large. All in all, we conclude that momentum is consistent with the value maximization of firms.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2010-17.
Date of creation: Sep 2010
Date of revision:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Lukas Menkhoff & Lucio Sarno & Maik Schmeling & Andreas Schrimpf, 2012.
"Currency Momentum Strategies,"
Working Paper Series
09_12, The Rimini Centre for Economic Analysis.
- Menkhoff, Lukas & Sarno, Lucio & Schmeling, Maik & Schrimpf, Andreas, 2012. "Currency Momentum Strategies," CEPR Discussion Papers 8747, C.E.P.R. Discussion Papers.
- Lukas Menkhoff & Lucio Sarno & Maik Schmeling & Andreas Schrimpf, 2011. "Currency Momentum Strategies," BIS Working Papers 366, Bank for International Settlements.
- John H. Cochrane, 2011. "Discount Rates," NBER Working Papers 16972, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.