Momentum Investing and Business Cycle Risk: Evidence from Pole to Pole

46 Pages Posted: 22 Nov 2001

See all articles by John M. Griffin

John M. Griffin

University of Texas at Austin - Department of Finance

J. Spencer Martin

University of Melbourne - Faculty of Business and Economics; Financial Research Network (FIRN)

Susan Ji

Luter School of Business, Christopher Newport University

Date Written: March 18, 2002

Abstract

We examine whether momentum profits globally can be explained by macroeconomic risk and address in part whether momentum returns are consistent with risk-based explanations. Profits to momentum strategies only weakly co-move among 40 countries, whether within regions or across continents. Internationally, momentum profits bear basically no statistically or economically significant relation to the Chen, Roll, and Ross (1986) macroeconomic factors. Performance of a forecasting model based on lagged instrumental variables also indicates that there is no measurable relation between macroeconomic risk and momentum either abroad or in the U.S. Globally, momentum profits are large and statistically reliable in periods of both negative and positive economic growth; these momentum profits reverse over one- to five-year horizons, an action inconsistent with current risk-based explanations.

Keywords: Momentum, Business Cycle, Portfolio Risk

JEL Classification: G12, G14, G15

Suggested Citation

Griffin, John M. and Martin, J. Spencer and Ji, Susan, Momentum Investing and Business Cycle Risk: Evidence from Pole to Pole (March 18, 2002). Available at SSRN: https://ssrn.com/abstract=291225 or http://dx.doi.org/10.2139/ssrn.291225

John M. Griffin

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-6621 (Phone)

HOME PAGE: http://www.jgriffin.info

J. Spencer Martin (Contact Author)

University of Melbourne - Faculty of Business and Economics ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Susan Ji

Luter School of Business, Christopher Newport University ( email )

Newport News, VA 23606
United States

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