Sources of Momentum Returns: A Decomposition of the Explained and the Unexplained Risk Factors
41 Pages Posted: 2 Feb 2015
Date Written: December 1, 2014
In this paper, I examine the sources of momentum returns and uncover a list of intriguing features. I find that when the momentum returns are decomposed the contributions of the explained and the unexplained risk factors depend on the level of analysis, the risk factors used, and the lag structure of the risk factors. Further, I find that at the individual stock level, the total contribution of the lagged macroeconomic risk factors is 59 percent per month but that the total contribution of the contemporaneous macroeconomic risk factors at the portfolio level is only 9 percent per month. These new findings add important insights to the existing momentum theories.
Keywords: Decomposition, explained risk factors, unexplained risk factors, portfolio level, individual stock level
JEL Classification: G11, G12, G19
Suggested Citation: Suggested Citation