Overlapping Momentum Portfolios

56 Pages Posted: 13 Dec 2022

Date Written: June 7, 2022

Abstract

Different momentum investors use different formation periods to evaluate past stock performance. We explore the consequences of this diversity by studying the stocks that are the likely constituents of the portfolios of the heterogeneous momentum investors that coexist in practice. We show that stocks in the intersection of the 6 and 12-month momentum portfolios—"overlapping'' momentum stocks—display enhanced medium-term return momentum. This finding is robust to considering a broad set of risk factors, transaction costs, and alternative explanations. Focusing on overlapping momentum stocks improves the returns of several momentum-based strategies proposed in the literature. The results are in line with the concurrence of trades by heterogeneous momentum investors exacerbating return continuation.

Keywords: Momentum, Asset pricing, Market anomalies, Market efficiency

JEL Classification: G12, G14

Suggested Citation

Blanco, Iván and De Jesus, Miguel and Remesal, Alvaro, Overlapping Momentum Portfolios (June 7, 2022). Available at SSRN: https://ssrn.com/abstract=3553765 or http://dx.doi.org/10.2139/ssrn.3553765

Iván Blanco (Contact Author)

CUNEF ( email )

C/ Leonardo Prieto Castro, 2
Madrid, Madrid 28040
Spain

HOME PAGE: http://cunef.edu/

Miguel De Jesus

CUNEF University ( email )

Calle de Leonardo Prieto Castro, 2
Madrid, Madrid 28040
Spain
914480892 (Phone)
914480892 (Fax)

HOME PAGE: http://sites.google.com/site/miguelkarlodejesus/

Alvaro Remesal

CUNEF Universidad ( email )

Calle de los Pirineos 55
Madrid, 28040
Spain

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