Momentum Profits, Factor Pricing, and Macroeconomic Risk

Liu, Laura Xiaolei; Zhang, Lu

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Momentum Profits, Factor Pricing, and Macroeconomic Risk

Review of Financial Studies, Forthcoming

40 Pages Posted: 7 Nov 2007

See all articles by Laura Xiaolei Liu

Laura Xiaolei Liu

Guanghua School of Management, Peking University

Lu Zhang

Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)

There are 3 versions of this paper

Abstract

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

Suggested Citation: Suggested Citation

Liu, Laura Xiaolei and Zhang, Lu, Momentum Profits, Factor Pricing, and Macroeconomic Risk. Review of Financial Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1027214