Mapping Momentum

25 Pages Posted: 12 Jul 2021 Last revised: 11 Sep 2021

See all articles by Yimou Li

Yimou Li

State Street Associates

David Turkington

State Street Associates

Date Written: September 10, 2021

Abstract

Findings on momentum and reversal effects in the stock market are often disparate. Differences in methodology, calibration, data universe, and the granularity of tests have made it challenging to reconcile and unify the various documented relationships. Our goal is to attribute stock return predictability to a variety of distinct momentum (and reversal) components within a single coherent framework. We focus on S&P 500 stocks and implement consistent data transformations, nested sets of excess returns, and panel regressions to facilitate this attribution. We find that sector and factor momentum coexist, but they operate on different horizons, and sector momentum is more prone to crash during volatile markets. Collectively, sector and factor momentum explains away most of the security-specific 12-month momentum effect, with factors explaining more. Traditional 12-month momentum is much more prevalent for past “loser” stocks whereas crashes and reversals are found mostly among past “winners.” Lastly, we show that in the decade after the 2008-2009 financial crisis compared to the decade prior, sector and industry momentum disappeared at the 12-month horizon but intensified in terms of 1-month reversals.

Keywords: Equity Investing, stock momentum, factor momentum, industry momentum, panel regression

JEL Classification: C23, G1, G14

Suggested Citation

Li, Yimou and Turkington, David, Mapping Momentum (September 10, 2021). Available at SSRN: https://ssrn.com/abstract=3883504 or http://dx.doi.org/10.2139/ssrn.3883504

Yimou Li (Contact Author)

State Street Associates ( email )

140 Mt. Auburn St
Cambridge, MA 02138
United States

David Turkington

State Street Associates ( email )

United States

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