The Remarkable Relevance of Characteristics for Momentum Profits

51 Pages Posted: 23 Sep 2018 Last revised: 2 Feb 2019

See all articles by Birgit Müller

Birgit Müller

Darmstadt University of Technology; Technische Universität München (TUM) - TUM School of Management

Sebastian Müller

Technische Universität München (TUM) - TUM School of Management

Date Written: August 29, 2018

Abstract

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

Müller, Birgit and Müller, Sebastian, The Remarkable Relevance of Characteristics for Momentum Profits (August 29, 2018). Available at SSRN: https://ssrn.com/abstract=3240609 or http://dx.doi.org/10.2139/ssrn.3240609

Birgit Müller (Contact Author)

Darmstadt University of Technology ( email )

Hochschulstraße 1
Darmstadt, Hesse D-64289
Germany

Technische Universität München (TUM) - TUM School of Management ( email )

Germany

Sebastian Müller

Technische Universität München (TUM) - TUM School of Management ( email )

Germany

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