Decomposing Momentum

57 Pages Posted: 18 Jun 2019

See all articles by Allaudeen Hameed

Allaudeen Hameed

National University of Singapore (NUS) - Department of Finance

Haifeng Wu

affiliation not provided to SSRN

Date Written: June 10, 2019

Abstract

We decompose the momentum profits based on total stock returns into three components: a long-term average alpha component that reverses, a stock beta component that accounts for the dynamic market exposure (and momentum crash risk), and a residual return component that drives the momentum effect (and subsumes total-return momentum). The variation in total-return momentum across market states and business cycles is attributable to the time-varying performance of the long-term reversal component, while residual-return momentum is invariant over time. Hence, we establish a dichotomy between intermediate-term momentum and long-term reversal: stocks that experience momentum are different from the ones that reverse.

Suggested Citation

Hameed, Allaudeen and Wu, Haifeng, Decomposing Momentum (June 10, 2019). Available at SSRN: https://ssrn.com/abstract=3401656 or http://dx.doi.org/10.2139/ssrn.3401656

Allaudeen Hameed (Contact Author)

National University of Singapore (NUS) - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://www.bschool.nus.edu.sg/staff_profile/cv.asp?ID=3

Haifeng Wu

affiliation not provided to SSRN

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