The Remarkable Relevance of Characteristics for Momentum Profits
51 Pages Posted: 23 Sep 2018 Last revised: 2 Feb 2019
Date Written: August 29, 2018
This paper provides a comprehensive analysis of a large set of momentum enhancing strategies for global equity markets. Our findings reveal the relevance of characteristics in enhancing and explaining momentum after accounting for possible interrelations with idiosyncratic volatility and extreme past returns. Out of a set of eighteen stock characteristics, we find particularly age, book-to-market, maximum daily return, R², information diffusion, and 52-week high price to matter for momentum profits. Overall, and consistent with behavioral explanation attempts, momentum appears to work best for hard-to-value firms with high information uncertainty. There are however substantial cross-country differences with regard to which characteristics truly enhance momentum. Our results imply that the link between idiosyncratic volatility, extreme past returns, and momentum profits itself is unable to comprehensively explain enhanced momentum returns and corroborate the heterogeneity of stock markets around the globe.
Keywords: momentum profits, stock characteristics, double-sorting, market efficiency, international stock markets
JEL Classification: G12, G14
Suggested Citation: Suggested Citation