The Acceleration Effect and Gamma Factor in Asset Pricing

25 Pages Posted: 21 Aug 2015

See all articles by Diego Ardila

Diego Ardila

ETH Zurich

Zalàn Forrò

Independent

Didier Sornette

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); Swiss Finance Institute

Date Written: August 19, 2015

Abstract

We report strong evidence that changes of momentum, i.e. "acceleration", defined as the first difference of successive returns, provide better performance and higher explanatory power than momentum. The corresponding Γ-factor explains the momentum-sorted portfolios entirely but not the reverse. Thus, momentum can be considered an imperfect proxy for acceleration, and its success can be attributed to its correlation to the predominant Γ-factor. Γ-strategies based on the "acceleration" effect are on average profitable and beat momentum-based strategies in two out of three cases, for a large panel of parameterizations. The "acceleration" effect and the Γ-factor profit from transient non-sustainable accelerating (upward or downward) log-prices associated with positive feedback mechanisms.

Keywords: Asset pricing, momentum, positive feedbacks, acceleration, investment strategies

JEL Classification: G01, G11, G12, G17

Suggested Citation

Ardila, Diego and Forrò, Zalàn and Sornette, Didier, The Acceleration Effect and Gamma Factor in Asset Pricing (August 19, 2015). Swiss Finance Institute Research Paper No. 15-30. Available at SSRN: https://ssrn.com/abstract=2645882 or http://dx.doi.org/10.2139/ssrn.2645882

Diego Ardila

ETH Zurich ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

Zalàn Forrò

Independent ( email )

No Address Available

Didier Sornette (Contact Author)

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC) ( email )

Scheuchzerstrasse 7
Zurich, ZURICH CH-8092
Switzerland
41446328917 (Phone)
41446321914 (Fax)

HOME PAGE: http://www.er.ethz.ch/

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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