Momentum Profits, Factor Pricing, and Macroeconomic Risk
40 Pages Posted: 7 Nov 2007
Recent winners have temporarily higher loadings than recent losers on the growth rate of industrial production. The loading spread derives mostly from the positive loadings of winners. The growth rate of industrial production is a priced risk factor in standard asset pricing tests. In many specifications, this macroeconomic risk factor explains more than half of momentum profits. We conclude that risk plays an important role in driving momentum profits.
Keywords: Momentum, the growth rate of industrial production, macroeconomic risk, the expected-growth risk
JEL Classification: G12, E44
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