Time-Varying Momentum Profitability

49 Pages Posted: 14 Jan 2010 Last revised: 19 Oct 2010

See all articles by Kevin Q. Wang

Kevin Q. Wang

University of Toronto - Joseph L. Rotman School of Management

Jianguo Xu

Beijing University

Date Written: January 10, 2010

Abstract

Despite the extensive literature on cross-sectional aspects of momentum, time-variation in momentum profitability receives little attention. We present a comprehensive examination of the time-series predictability of momentum profits. We uncover a list of intriguing features of time-variation in momentum profits: (1) market volatility has significant power to forecast momentum payoffs, which is even more robust than that of market state or business cycle variables; (2) the time-series predictability is centered on loser stocks; and (3) the time-series patterns appear to be at odds with the cross-sectional results. These new findings jointly present a tough challenge to existing theories on momentum.

Keywords: Momentum; time-series predictability; market volatility; time-varying sentiment

Suggested Citation

Wang, Kevin Q. and Xu, Jianguo, Time-Varying Momentum Profitability (January 10, 2010). Available at SSRN: https://ssrn.com/abstract=1534325 or http://dx.doi.org/10.2139/ssrn.1534325

Kevin Q. Wang (Contact Author)

University of Toronto - Joseph L. Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416 946 5059 (Phone)
416 971 3048 (Fax)

Jianguo Xu

Beijing University ( email )

Beijing, 100871
China

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