Style Investing, Comovement and Return Predictability
37 Pages Posted: 17 Mar 2008
Date Written: 2008
Barberis and Shleifer (2003) argue that style investing generates (a) comovement between individual assets and their styles, and (b) momentum and reversals in both style and asset returns. We find that high comovement winner (loser) portfolios have significantly higher (lower) future returns than low comovement winner (loser) portfolios. Long-horizon reversals are also larger for high comovement portfolios. The magnitude of the improvement in three-factor alphas from traditional momentum strategies (Jegadeesh and Titman, 1993, 2001) is remarkably large, almost 5 percent per year. Our results suggest that style investing plays an important role in the predictability of returns.
Keywords: style investing, comovement, momentum
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation