A Conditional Multifactor Analysis of Return Momentum

City U of HK, Dept. of Economics and Finance Working Paper No. 114

35 Pages Posted: 15 Feb 2001

See all articles by Xueping Wu

Xueping Wu

City University of Hong Kong (CityU) - Department of Economics & Finance

Multiple version iconThere are 2 versions of this paper

Date Written: February 2001

Abstract

Although the Fama-French three-factor model captures most CAPM anomalies, it still fails to explain return momentum. This paper shows that the incorporation of conditioning information into an asset-pricing model is one way to capture return momentum. Results from the conditional regression with linear exposures in the instruments show clear evidence that both SMB and HML risks are time varying and that momentum and reversal return patterns have different time-varying risk characteristics. The conditional Fama-French regression model seems, however, to remain misspecified. Conversely, when the linearity assumption is relaxed and cross-sectional restrictions are imposed, the conditional pricing model appears to capture both short-term momentum and long-term reversal.

Key words: Conditional Asset Pricing, Conditioning Information, Multifactor Model, Return Momentum, Return Reversal

JEL Classification: G11, G12, G14

Suggested Citation

Wu, Xueping, A Conditional Multifactor Analysis of Return Momentum (February 2001). City U of HK, Dept. of Economics and Finance Working Paper No. 114, Available at SSRN: https://ssrn.com/abstract=259206 or http://dx.doi.org/10.2139/ssrn.259206

Xueping Wu (Contact Author)

City University of Hong Kong (CityU) - Department of Economics & Finance ( email )

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