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Residual momentum

  • Blitz, David
  • Huij, Joop
  • Martens, Martin

Conventional momentum strategies exhibit substantial time-varying exposures to the Fama and French factors. We show that these exposures can be reduced by ranking stocks on residual stock returns instead of total returns. As a consequence, residual momentum earns risk-adjusted profits that are about twice as large as those associated with total return momentum; is more consistent over time; and less concentrated in the extremes of the cross-section of stocks. Our results are inconsistent with the notion that the momentum phenomenon can be attributed to a priced risk factor or market microstructure effects.

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File URL: http://www.sciencedirect.com/science/article/pii/S0927539811000041
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Article provided by Elsevier in its journal Journal of Empirical Finance.

Volume (Year): 18 (2011)
Issue (Month): 3 (June)
Pages: 506-521

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Handle: RePEc:eee:empfin:v:18:y:2011:i:3:p:506-521
Contact details of provider: Web page: http://www.elsevier.com/locate/jempfin

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