Can Common Components Eliminate Momentum Returns?

41 Pages Posted: 8 May 2008

See all articles by Sirajum Munira

Sirajum Munira

City University - Sir John Cass Business School - Faculty of Finance

Yaz Gulnur Muradoglu

Queen Mary University of London; City University London - Sir John Cass Business School

Soosung Hwang

Sungkyunkwan University - Department of Economics

Date Written: May 7, 2008

Abstract

This paper investigates the presence of momentum return when priced for common components. Using a sample period from 1926 through 2005 for all stocks listed in the NYSE, AMEX and NASDAQ we show significant momentum return remains both at the portfolio level and at the individual stock level. We report positive and significant alpha of 0.009 when Fama-French three factors and macroeconomic factors are used as common components at the portfolio level. At the individual stock level, though Fama-French factors cannot eliminate momentum return, the premium diminishes when macroeconomic variables are employed. The result is more pronounced when lagged variables are in play and during market upturn. Our results are robust in different sub-periods and when contemporaneous and lagged variables are used. We conclude that common components cannot eliminate momentum return; the explanatory power of macroeconomic variable is conditioned on assumptions like predictor variable and market condition.

Keywords: Momentum return, Common Components, Market States, Fama-French factors, Macroeconomic factors

JEL Classification: G11, G12, G19

Suggested Citation

Munira, Sirajum and Muradoglu, Yaz Gulnur and Hwang, Soosung, Can Common Components Eliminate Momentum Returns? (May 7, 2008). Available at SSRN: https://ssrn.com/abstract=1130612 or http://dx.doi.org/10.2139/ssrn.1130612

Sirajum Munira (Contact Author)

City University - Sir John Cass Business School - Faculty of Finance ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44(0) 20 7040 8208 (Phone)
+44(0) 20 7040 8546 (Fax)

Yaz Gulnur Muradoglu

Queen Mary University of London ( email )

Francis Bancroft Building
Mile End Road
London, E1 4NS
United Kingdom

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 7040 0124 (Phone)
+44 20 7040 8853 (Fax)

Soosung Hwang

Sungkyunkwan University - Department of Economics ( email )

25-2 Sungkyunkwan-ro
Jongno-Gu
110-745 Seoul
+82 (0)2 760 0489 (Phone)
+82 (0)2 744 5717 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
121
Abstract Views
1,199
rank
243,470
PlumX Metrics