Momentum in Credit Rated Stocks: Is Momentum Investors' Reaction to Uncertainty Across Business Cycle?
24 Pages Posted: 12 May 2008
Date Written: May 2008
Momentum returns are mainly earned by speculative grade stocks and during contractions. We observe momentum returns of about 2 percent per month (23 percent per annum) in speculative grade stocks and that are more pronounced returns of more than 3 percent per month (25 percent per annum) during contractions. Momentum returns of speculative grade stocks disappear when controlled for macroeconomic risk factors. We conclude that therefore momentum is a reaction of the investors to high uncertainty either due to increased business risk of stocks or due to increased macroeconomic risk.
Keywords: Credit Rated Stocks, Business Cycle, Uncertainty, Investment Grade stocks, Speculative Grade stocks and Macroeconomic risk factors
JEL Classification: G11, G12, G19
Suggested Citation: Suggested Citation