Sources of Momentum Profits: Evidence on the Irrelevance of Characteristics

48 Pages Posted: 23 Dec 2010 Last revised: 12 Sep 2011

See all articles by Pavel Bandarchuk

Pavel Bandarchuk

Acadian Asset Management

Jens Hilscher

University of California, Davis

Date Written: September 7, 2011


Several recent studies document that sorting stocks first on certain stock-level characteristics and then on past returns results in elevated momentum profits. We show that such strategies enhance momentum profits simply by trading in stocks with more extreme past returns. Adjusted for this effect, elevated momentum profits resulting from characteristics (size, R², turnover, age, analyst coverage, analyst forecast dispersion, market-to-book, price, illiquidity, credit rating) disappear almost entirely. Interaction patterns have been used to support behavioral and limits-to-arbitrage explanations of momentum; our findings imply that explanations of momentum should instead focus on the link between momentum profits and extreme past returns.

Keywords: Momentum, Past Returns, Volatility, Stock-Level Characteristics, Double Sorts

JEL Classification: G11, G12, G14

Suggested Citation

Bandarchuk, Pavel and Hilscher, Jens, Sources of Momentum Profits: Evidence on the Irrelevance of Characteristics (September 7, 2011). Available at SSRN: or

Pavel Bandarchuk

Acadian Asset Management ( email )

260 Franklin Street
Boston, MA 02110
United States
6178245663 (Phone)
02110 (Fax)

Jens Hilscher (Contact Author)

University of California, Davis ( email )

One Shields Avenue
Apt 153
Davis, CA 95616
United States

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