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Momentum turning points

Author

Listed:
  • Goulding, Christian L.
  • Harvey, Campbell R.
  • Mazzoleni, Michele G.

Abstract

We use slow and fast time-series momentum to characterize four stock market cycles—Bull, Correction, Bear, and Rebound. The steep market declines of Bears concentrate in high-risk states, yet predict negative expected returns, which is difficult to rationalize by most models of time-varying risk premia. Using a model to analyze slow and fast momentum strategies, we estimate both relatively high mean persistence and realization noise in U.S. stock market returns. Intermediate-speed momentum portfolios, formed by blending slow and fast momentum strategies, translate predictive information in market cycles into positive unconditional alpha, for which we propose a novel decomposition.

Suggested Citation

  • Goulding, Christian L. & Harvey, Campbell R. & Mazzoleni, Michele G., 2023. "Momentum turning points," Journal of Financial Economics, Elsevier, vol. 149(3), pages 378-406.
    • Handle: RePEc:eee:jfinec:v:149:y:2023:i:3:p:378-406
    DOI: 10.1016/j.jfineco.2023.05.007
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    More about this item

    Keywords

    Time-series momentum; Turning points; Volatility timing; Market timing; Trend following; Momentum speed;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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