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An analysis on the predictability of CAPM beta for momentum returns

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  • Tolga Cenesizoglu
  • Nicolas Papageorgiou
  • Jonathan J. Reeves
  • Haifeng Wu

Abstract

This paper demonstrates that the forecasted capital asset pricing model (CAPM) beta of momentum portfolios explains a large portion of the return, ranging from 40% to 60% for stock‐level momentum, and from 30% to 50% for industry‐level momentum. Beta forecasts are from a realized beta estimator using daily returns over the prior year. Periods such as 1969–1989 have been found in earlier studies to contain abnormal profits from momentum trading; however, we show that these were spuriously generated by measurement error in systematic risk. These results cast further doubt on the ability of standard momentum trading strategies to generate abnormal profits.

Suggested Citation

  • Tolga Cenesizoglu & Nicolas Papageorgiou & Jonathan J. Reeves & Haifeng Wu, 2019. "An analysis on the predictability of CAPM beta for momentum returns," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 38(2), pages 136-153, March.
    • Handle: RePEc:wly:jforec:v:38:y:2019:i:2:p:136-153
    DOI: 10.1002/for.2552
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    Cited by:

    1. Tolga Cenesizoglu & Denada Ibrushi, 2020. "Predicting Systematic Risk With Macroeconomic And Financial Variables," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 43(3), pages 649-673, August.

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