Macroeconomic Risk and Seasonality in Momentum Profits
41 Pages Posted: 1 Oct 2012 Last revised: 16 Dec 2017
Date Written: January 30, 2017
We contribute to the growing debate on the relation between macroeconomic risk and stock price momentum. Not only is momentum seasonal, so is its net factor exposure. We show that winners and losers only differ in macroeconomic factor loadings during January, the one month when losers overwhelmingly outperform winners. In the remainder of the year, when momentum does exist, winner and loser factor loadings offset nearly completely. Furthermore, the magnitude of macroeconomic risk premia appears to seasonally vary contra momentum. In contrast, the relatively new profitability factor does a much better job of capturing the described seasonality.
Keywords: Momentum; Macroeconomic risk; ROE; Seasonality; January effects
JEL Classification: G12; E44
Suggested Citation: Suggested Citation