Momentum Profits and Macroeconomic Risk
AbstractPrevious work shows that the growth rate of industrial production is a common macroeconomic risk factor in the cross-section of expected returns. We demonstrate the connection between momentum profits and shifts in factor loadings on this macroeconomic variable. Winners have temporarily higher loadings on the growth rate of industrial production than losers. The loading dispersion derives mostly from the high, positive loadings of winners. Depending on model specification, this loading dispersion can explain up to 40% of momentum profits.
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Date of creation: Jul 2005
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Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-07-18 (All new papers)
- NEP-FIN-2005-07-18 (Finance)
- NEP-FMK-2005-07-18 (Financial Markets)
- NEP-MAC-2005-07-18 (Macroeconomics)
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