Return Dispersion and Conditional Momentum Returns: International Evidence

39 Pages Posted: 23 Jan 2016

See all articles by Gareth Hurst

Gareth Hurst

University of Newcastle (Australia)

Paul Docherty

The Brattle Group

Date Written: January 22, 2016

Abstract

The momentum premium is pervasive across international markets and different asset classes; however the drivers of this premium are yet to be established. This paper contributes to the literature by examining the relationship between a leading economic indicator, return dispersion, and the momentum premium across regions. We document a strong relationship between return dispersion and the momentum premium using both ex-post and ex-ante empirical methods. This relationship is robust to the inclusion of a set of control variables and an alternate specification of return dispersion. We employ a conditional momentum strategy that scales the unconditional momentum strategy by the level of return dispersion and find that the conditional momentum strategy outperforms the unconditional momentum strategy in all regions. The results presented in this paper document the dynamic relationship between risk and the momentum premium.

Keywords: International momentum, return dispersion

JEL Classification: G12, G15

Suggested Citation

Hurst, Gareth and Docherty, Paul, Return Dispersion and Conditional Momentum Returns: International Evidence (January 22, 2016). 2016 Financial Markets and Corporate Governance, Available at SSRN: https://ssrn.com/abstract=2720123 or http://dx.doi.org/10.2139/ssrn.2720123

Gareth Hurst (Contact Author)

University of Newcastle (Australia) ( email )

University Drive
Callaghan, NSW 2308
Australia

Paul Docherty

The Brattle Group ( email )

44 Brattle Street
3rd Floor
Cambridge, MA 02138-3736
United States

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