Momentum in Credit Rated Stocks: Is Momentum Investors' Reaction to Uncertainty Across Business Cycle?

24 Pages Posted: 12 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

Date Written: May 2008

Abstract

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

Munira, Sirajum and Muradoglu, Yaz Gulnur, Momentum in Credit Rated Stocks: Is Momentum Investors' Reaction to Uncertainty Across Business Cycle? (May 2008). Available at SSRN: https://ssrn.com/abstract=1130792 or http://dx.doi.org/10.2139/ssrn.1130792

Sirajum Munira

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

106 Bunhill Row
London, EC1Y 8TZ
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Yaz Gulnur Muradoglu (Contact Author)

Queen Mary University of London ( email )

Francis Bancroft Building
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London, E1 4NS
United Kingdom

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

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

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