Mesdames Et Messieurs, Momentum Performance is Not so Abnormal after All!
Posted: 21 Jan 2016
Date Written: 2013
This paper provides evidence regarding the performance of momentum investment strategies that is consistent with neoclassical theory. More specifically, while momentum investment returns appear orthogonal to systematic risk in the extant literature, this paper illustrates that they due to correlated changes of hedge portfolio systematic risk exposures with market conditions. Momentum portfolios act as near-perfect market timers, offering hedging opportunities in expanding markets and increased returns in contracting markets. These returns however are generally not abnormal when timing is considered in an augmented unconditional CAPM, while the standard version erroneously considers them to be so, possibly explaining why momentum studies have so far rejected the Neoclassical Theory.
Keywords: Momentum Investment, Risk Variation, Market Fluctuations, Dummy Variables, French Security Exchange
JEL Classification: E3, E4, G1
Suggested Citation: Suggested Citation