An Analysis on the Predictability of CAPM Beta for Momentum Returns

42 Pages Posted: 4 Oct 2014 Last revised: 9 Mar 2016

See all articles by Tolga Cenesizoglu

Tolga Cenesizoglu

HEC Montreal - Department of Finance

Nicolas A. Papageorgiou

HEC Montreal - Department of Finance

Jonathan J. Reeves

UNSW Business School, University of New South Wales; Financial Research Network (FIRN)

Haifeng Wu

UNSW Australia Business School, School of Banking and Finance; UNSW Business School

Date Written: March 3, 2016

Abstract

This paper demonstrates that the forecasted CAPM beta of momentum portfolios explains a large portion of the return, ranging from 40% to 60% for stock level momentum, and 30% to 50% for industry level momentum. Beta forecasts are from a realized beta estimator using daily returns over the prior year. Periods such as 1969 to 1989 have been found in earlier studies to contain abnormal profits from momentum trading,however, we show that these were spuriously generated by measurement error in systematic risk. These results cast further doubt on the ability of standard momentum trading strategies to generate abnormal profits.

Keywords: Momentum Trading Strategies, Realized Beta, Systematic Risk

JEL Classification: G12, G17

Suggested Citation

Cenesizoglu, Tolga and Papageorgiou, Nicolas A. and Reeves, Jonathan J. and Wu, Haifeng, An Analysis on the Predictability of CAPM Beta for Momentum Returns (March 3, 2016). UNSW Business School Research Paper No. 2014 BFIN 18. Available at SSRN: https://ssrn.com/abstract=2504876 or http://dx.doi.org/10.2139/ssrn.2504876

Tolga Cenesizoglu

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

HOME PAGE: http://www.hec.ca/en/profs/tolga.cenesizoglu.html

Nicolas A. Papageorgiou

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Jonathan J. Reeves (Contact Author)

UNSW Business School, University of New South Wales ( email )

Sydney, NSW 2052
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Haifeng Wu

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia
+61 2 9385 5874 (Phone)

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

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