Momentum Profits, Factor Pricing, and Macroeconomic Risk
Posted: 15 Dec 2008
Date Written: November 2008
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: G12, E44
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