Trend Factor: A New Determinant of Cross-Section Stock Returns
University of Colorado at Denver - Business School
Washington University in St. Louis - Olin School of Business
We propose a trend factor capturing cross-section short-, intermediate- and long-term stock price trends. In contrast, the popular momentum factor relies on only one intermediate-term signal. The trend factor has an average return of 1.63% per month, more than twice that of the momentum factor and more than doubles the Sharpe ratio. In addition, during the recent financial crisis, it earns 0.79% per month while the momentum factor loses 1.33% per month. Moreover, its performance is robust to a variety of control variables and it explains the cross-section returns as well as or better than the momentum factor..
Number of Pages in PDF File: 54
Keywords: Trends, Factor Models, Momentum, Moving Averages, Predictability
JEL Classification: G11, G14working papers series
Date posted: December 2, 2012 ; Last revised: May 1, 2014
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