IDEAS home Printed from https://ideas.repec.org/a/eee/finmar/v36y2017icp76-90.html
   My bibliography  Save this article

Macroeconomic risk and seasonality in momentum profits

Author

Listed:
  • Ji, Xiuqing
  • Martin, J. Spencer
  • Yao, Yaqiong

Abstract

We contribute to the growing debate on the relation between macroeconomic risk and stock price momentum. Not only is momentum seasonal, so is its net factor exposure. We show that winners and losers only differ in macroeconomic factor loadings in January, the one month when losers overwhelmingly outperform winners. In the remainder of the year, when momentum does exist, winner and loser factor loadings offset nearly completely. Furthermore, the magnitude of macroeconomic risk premia appears to seasonally vary contra momentum. In contrast, the relatively new profitability factor does a much better job of capturing the described seasonality.

Suggested Citation

  • Ji, Xiuqing & Martin, J. Spencer & Yao, Yaqiong, 2017. "Macroeconomic risk and seasonality in momentum profits," Journal of Financial Markets, Elsevier, vol. 36(C), pages 76-90.
  • Handle: RePEc:eee:finmar:v:36:y:2017:i:c:p:76-90
    DOI: 10.1016/j.finmar.2017.04.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1386418115300598
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Balvers, Ronald J. & Huang, Dayong, 2007. "Productivity-based asset pricing: Theory and evidence," Journal of Financial Economics, Elsevier, vol. 86(2), pages 405-445, November.
    2. Kramer, Charles, 1994. " Macroeconomic Seasonality and the January Effect," Journal of Finance, American Finance Association, vol. 49(5), pages 1883-1891, December.
    3. Tarun Chordia & Lakshmanan Shivakumar, 2002. "Momentum, Business Cycle, and Time-varying Expected Returns," Journal of Finance, American Finance Association, vol. 57(2), pages 985-1019, April.
    4. Grinblatt, Mark & Moskowitz, Tobias J., 2004. "Predicting stock price movements from past returns: the role of consistency and tax-loss selling," Journal of Financial Economics, Elsevier, vol. 71(3), pages 541-579, March.
    5. Sias, Richard W & Starks, Laura T, 1997. " Institutions and Individuals at the Turn-of-the-Year," Journal of Finance, American Finance Association, vol. 52(4), pages 1543-1562, September.
    6. Kewei Hou & Chen Xue & Lu Zhang, 2015. "Editor's Choice Digesting Anomalies: An Investment Approach," Review of Financial Studies, Society for Financial Studies, vol. 28(3), pages 650-705.
    7. K. Geert Rouwenhorst, 1998. "International Momentum Strategies," Journal of Finance, American Finance Association, vol. 53(1), pages 267-284, February.
    8. Zoran Ivković & James Poterba & Scott Weisbenner, 2005. "Tax-Motivated Trading by Individual Investors," American Economic Review, American Economic Association, vol. 95(5), pages 1605-1630, December.
    9. Scott Mayfield, E., 2004. "Estimating the market risk premium," Journal of Financial Economics, Elsevier, vol. 73(3), pages 465-496, September.
    10. Heston, Steven L. & Sadka, Ronnie, 2008. "Seasonality in the cross-section of stock returns," Journal of Financial Economics, Elsevier, vol. 87(2), pages 418-445, February.
    11. Yao, Yaqiong, 2012. "Momentum, contrarian, and the January seasonality," Journal of Banking & Finance, Elsevier, vol. 36(10), pages 2757-2769.
    12. Clifford S. Asness & Tobias J. Moskowitz & Lasse Heje Pedersen, 2013. "Value and Momentum Everywhere," Journal of Finance, American Finance Association, vol. 68(3), pages 929-985, June.
    13. Cooper, Ilan & Priestley, Richard, 2011. "Real investment and risk dynamics," Journal of Financial Economics, Elsevier, vol. 101(1), pages 182-205, July.
    14. Matti Keloharju & Juhani T. Linnainmaa & Peter Nyberg, 2016. "Return Seasonalities," Journal of Finance, American Finance Association, vol. 71(4), pages 1557-1590, August.
    15. James M. Poterba & Scott J. Weisbenner, 1998. "Capital Gains Tax Rules, Tax Loss Trading and Turn-of-the-Year Returns," NBER Working Papers 6616, National Bureau of Economic Research, Inc.
    16. Bali, Turan G. & Brown, Stephen J. & Caglayan, Mustafa O., 2014. "Macroeconomic risk and hedge fund returns," Journal of Financial Economics, Elsevier, vol. 114(1), pages 1-19.
    17. Savor, Pavel & Wilson, Mungo, 2013. "How Much Do Investors Care About Macroeconomic Risk? Evidence from Scheduled Economic Announcements," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(02), pages 343-375, April.
    18. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-636, May-June.
    19. Fama, Eugene F & French, Kenneth R, 1996. " Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
    20. Møller, Stig V. & Rangvid, Jesper, 2015. "End-of-the-year economic growth and time-varying expected returns," Journal of Financial Economics, Elsevier, vol. 115(1), pages 136-154.
    21. Fama, Eugene F. & Gibbons, Michael R., 1984. "A comparison of inflation forecasts," Journal of Monetary Economics, Elsevier, vol. 13(3), pages 327-348, May.
    22. Michael J. Cooper & Roberto C. Gutierrez & Allaudeen Hameed, 2004. "Market States and Momentum," Journal of Finance, American Finance Association, vol. 59(3), pages 1345-1365, June.
    23. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
    24. Ng, Lilian & Wang, Qinghai, 2004. "Institutional trading and the turn-of-the-year effect," Journal of Financial Economics, Elsevier, vol. 74(2), pages 343-366, November.
    25. John M. Griffin & Xiuqing Ji & J. Spencer Martin, 2003. "Momentum Investing and Business Cycle Risk: Evidence from Pole to Pole," Journal of Finance, American Finance Association, vol. 58(6), pages 2515-2547, December.
    26. Jia He, 2004. "Quarterly Trading Patterns of Financial Institutions," The Journal of Business, University of Chicago Press, vol. 77(3), pages 493-510, July.
    27. 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.
    28. James M. Poterba, 2001. "Capital Gains Tax Rules, Tax-loss Trading, and Turn-of-the-year Returns," Journal of Finance, American Finance Association, vol. 56(1), pages 353-368, February.
    29. Laura Xiaolei Liu & Lu Zhang, 2008. "Momentum Profits, Factor Pricing, and Macroeconomic Risk," Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2417-2448, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Momentum; Macroeconomic risk; ROE; Seasonality; January effects;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finmar:v:36:y:2017:i:c:p:76-90. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/finmar .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.