Cross-Sectional Factor Dynamics and Momentum Returns

65 Pages Posted: 27 Oct 2015 Last revised: 9 Aug 2016

Doron Avramov

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Satadru Hore

Federal Reserve Bank of Boston

Date Written: August 8, 2016

Abstract

We develop a structural model where joint dynamics of aggregate consumption and asset-specific dividends are governed by correlated state-variables. The correlation structure implies distinct cross-sectional exposures of dividends to long history of consumption growth rates, resulting in variation of consumption beta. Such variation rationalizes momentum crashes per Daniel and Moskowitz (2015), as Winner's consumption beta remains low after the economy recovers from a downturn, while Loser's consumption beta grows quickly. Emerging from a recession, the momentum strategy thus reduces in consumption beta and risk-premia. Variation in beta also explains tendency of momentum to concentrate in stocks with particular styles.

Keywords: Momentum, Cross-Sectional Dynamics, Long-Run Risk, Bayesian Filtering

JEL Classification: G12, C32

Suggested Citation

Avramov, Doron and Hore, Satadru, Cross-Sectional Factor Dynamics and Momentum Returns (August 8, 2016). Available at SSRN: https://ssrn.com/abstract=2679656 or http://dx.doi.org/10.2139/ssrn.2679656

Doron Avramov

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel

HOME PAGE: http://pluto.huji.ac.il/~davramov/

Satadru Hore (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02116
United States

Paper statistics

Downloads
210
Rank
119,977
Abstract Views
1,196