33 Pages Posted: 1 Jul 2019
Date Written: June 30, 2019
According to several extended behavioral theories, value profits should mirror momentum profits, and vary over time. We test these theories in the cross section of returns. Value returns depend on market states. From 1926 to 2018, following negative market return, the average so-called value premium is about three time its unconditional counterpart, whereas it appears to vanish following positive market return. Moreover, several short episodes of extreme losses in momentum strategy (momentum crashes) are contemporaneous with extreme value profits (value bubbles). Our results are robust to various time varying risk- based explanations.
Keywords: Biases; Contrarian; Market Anomalies; Market Efficiency; Market States, Over-reaction; Value Premium
JEL Classification: G10, G11, G40, G41
Suggested Citation: Suggested Citation