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Productivity Risk and Industry Momentum

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  • Efdal Ulas Misirli

Abstract

A productivity shock identified through a vector autoregression model is a priced risk factor for one‐month industry momentum portfolios and commands a positive risk premium. Stocks in winning industries have greater sensitivity to productivity news, thereby earning higher average returns than stocks in losing industries. This evidence lends support to an Intertemporal Capital Asset Pricing Model (ICAPM) with human wealth. In many specifications, exposure to productivity risk captures more than half of the observed industry momentum profits. This paper studies the sources of profits and attributes the risks of industry momentum portfolios to the behavior of their underlying cash flows.

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  • Efdal Ulas Misirli, 2018. "Productivity Risk and Industry Momentum," Financial Management, Financial Management Association International, vol. 47(3), pages 739-774, September.
    • Handle: RePEc:bla:finmgt:v:47:y:2018:i:3:p:739-774
    DOI: 10.1111/fima.12206
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    Cited by:

    1. Xiaoyue Chen & Bin Li & Andrew C. Worthington, 2022. "Realised volatility and industry momentum returns," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-12, December.

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