Value, Momentum and Market Timing

60 Pages Posted: 19 Feb 2015 Last revised: 7 Jan 2021

See all articles by Ilias Filippou

Ilias Filippou

Washington University in St. Louis - John M. Olin Business School

Pedro Angel Garcia-Ares

Instituto Tecnológico Autónomo de México (ITAM)

Date Written: March 14, 2016

Abstract

We study firm-level characteristics that a manager would employ as signalling tools in order to time the market (i.e. repurchases and issues). Following the market timing framework, we develop a two-factor asset pricing model comprising a “market” and a “mispricing” factor, which is able to capture the cross-sectional variation of value and momentum. Specifically, loser (undervalued) portfolios provide a premium when market timing succeeds while winner (overvalued) portfolios provide a hedge under bad states of the world when market timing fails. The two factors contain important information regarding the time-variation of the strategies providing a unique explanation for momentum crashes.

Keywords: Value, Momentum, Market-timing, Asset Pricing.

JEL Classification: G11, G12, G14, G32.

Suggested Citation

Filippou, Ilias and Garcia-Ares, Pedro Angel, Value, Momentum and Market Timing (March 14, 2016). Available at SSRN: https://ssrn.com/abstract=2565913 or http://dx.doi.org/10.2139/ssrn.2565913

Ilias Filippou (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Pedro Angel Garcia-Ares

Instituto Tecnológico Autónomo de México (ITAM)

Av. Camino a Sta. Teresa 930
Col. Héroes de Padierna
Mexico City, D.F. 01000, Federal District 01080
Mexico

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