Momentum? What Momentum?

53 Pages Posted: 14 Oct 2020 Last revised: 13 Jul 2023

See all articles by Erik Theissen

Erik Theissen

University of Mannheim - Finance Area

Can Yilanci

University of Mannheim - Finance Area

Date Written: July 13, 2023

Abstract

Momentum portfolios are characterized by high turnover and time-varying factor exposure. They load positively (negatively) on factors with positive (negative) realizations during the formation period. However, the conventional risk adjustment, a full-sample portfolio-level regression, implicitly assumes constant factor exposure. We adjust for risk at the stock-level and control for time-varying factor exposure. We find that momentum returns are much smaller than previously thought, and that the Fama and French (2015) 5-factor model explains unconditional momentum returns well. Our findings also confirm recent evidence (Ehsani and Linnainmaa 2022) that momentum in stock returns is driven by factor momentum.

Keywords: Momentum, Risk adjustment, Time-series regression

JEL Classification: C58, G12

Suggested Citation

Theissen, Erik and Yilanci, Can, Momentum? What Momentum? (July 13, 2023). Proceedings of Paris December 2020 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=3710496 or http://dx.doi.org/10.2139/ssrn.3710496

Erik Theissen (Contact Author)

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

Can Yilanci

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

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