Eureka! A Momentum Strategy that Also Works in Japan
32 Pages Posted: 9 Jan 2012 Last revised: 13 Jan 2012
Date Written: January 9, 2012
This article explores an alternative definition of momentum that is calculated using the idiosyncratic returns from market regressions. By removing the return component due to market beta exposure, this new definition of momentum reduces the volatility of momentum strategies and generates sizeable four-factor alphas. These results hold in a sample of 21 countries, in addition to U.S. data. Most interestingly, the findings also hold in Japan, where previous studies have failed to find any significant power for traditional momentum strategies.
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