Two Centuries of Price Return Momentum
University of Pennsylvania - The Wharton School, Finance Department
January 25, 2016
Financial Analysts Journal, Vol. 72, No. 5 (September/October 2016)
We assemble a monthly dataset of U.S. security prices between 1801 and 1926 and, both in and out of sample, test price-return momentum strategies discovered in the post-1927 data. The pre-1927 momentum profits remain positive and statistically significant. Additional time-series data strengthen the evidence that momentum is dynamically exposed to market risk, conditional on the sign and duration of the trailing market state. In the beginning of each market state, momentum’s equity beta is opposite from the new market direction, generating a negative contribution to momentum profits around market turning points. A dynamically-hedged momentum strategy significantly outperforms the un-hedged strategy.
Number of Pages in PDF File: 58
Keywords: Price Momentum, Early Security Prices, Market States, Price Reversal, Hedging
JEL Classification: G12, G14
Date posted: July 12, 2013 ; Last revised: September 4, 2016
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