Another Look at Industry Momentum and the Cross Section of Expected Returns

38 Pages Posted: 18 Feb 2015

See all articles by Klaus Grobys

Klaus Grobys

University of Vaasa; University of Jyväskyla

Date Written: February 16, 2015

Abstract

This paper investigates whether industry affiliation matters to implementing industry momentum strategies. After discriminating between relevant and redundant industries it shows that only a subset corresponding to less than 50% of the overall market capitalization generates significant momentum payoffs. Industry momentum is only priced in the cross section of expected returns when relevant industries are used as test assets. An out-of-sample experiment utilizing a new double-sorting approach is proposed. It incorporates a learning period to condition momentum strategies on relevant industries and offers evidence that the conditional momentum strategy generates up to 30% higher payoffs than the unconditional counterpart.

Keywords: Industry momentum, Industry affiliation, Industry momentum factor, Asset growth, Credit rating, Cross section of expected returns

JEL Classification: G12, G14

Suggested Citation

Grobys, Klaus, Another Look at Industry Momentum and the Cross Section of Expected Returns (February 16, 2015). Available at SSRN: https://ssrn.com/abstract=2565740 or http://dx.doi.org/10.2139/ssrn.2565740

Klaus Grobys (Contact Author)

University of Vaasa ( email )

P.O. Box 700
Wolffintie 34
FIN-65101 Vaasa
Finland

University of Jyväskyla ( email )

Jyväskyla
Finland

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