Market Risk and the Momentum Mystery

39 Pages Posted: 21 Nov 2018 Last revised: 9 Feb 2019

See all articles by James W. Kolari

James W. Kolari

Texas A&M University - Department of Finance

Wei Liu

Texas A&M University - Department of Finance

Date Written: February 7, 2019

Abstract

This paper employs the ZCAPM asset pricing model of Liu, Kolari, and Huang (2018) to show that momentum returns are highly related to market risk arising from return dispersion (RD). Cross-sectional tests show that momentum risk loadings and RD risk loadings are similarly priced in momentum portfolios. Comparative analyses find that zero-investment momentum portfolios and zero-investment return dispersion portfolios earn high returns relative to other risk factors. Further regression tests indicate that zero-investment momentum returns are very significantly related to zero-investment return dispersion returns. We conclude that the momentum mystery is explained by market risk associated with return dispersion for the most part.

Keywords: momentum, market risk, return dispersion, asset pricing

JEL Classification: C20, C30, G12, G19

Suggested Citation

Kolari, James W. and Liu, Wei, Market Risk and the Momentum Mystery (February 7, 2019). Available at SSRN: https://ssrn.com/abstract=3280559 or http://dx.doi.org/10.2139/ssrn.3280559

James W. Kolari (Contact Author)

Texas A&M University - Department of Finance ( email )

MS-4218
Department of Finance
College Station, TX TX 77843-4218
United States
979-845-4803 (Phone)
979-845-3884 (Fax)

Wei Liu

Texas A&M University - Department of Finance ( email )

430 Wehner
College Station, TX 77843-4218
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
187
Abstract Views
726
rank
160,652
PlumX Metrics