Momentum Investing and Business Cycle Risk: Evidence from Pole to Pole

Posted: 24 Nov 2003 Last revised: 31 Mar 2015

John M. Griffin

University of Texas at Austin - Department of Finance

Susan Ji

College of Business, Governors State University

J. Spencer Martin

University of Melbourne - Faculty of Business and Economics; Financial Research Network (FIRN)

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Abstract

We examine whether momentum profits globally can be explained by macroeconomic risk and address in part whether momentum returns are consistent with risk-based explanations. Profits to momentum strategies only weakly co-move among 40 countries, whether within regions or across continents. Internationally, momentum profits bear basically no statistically or economically significant relation to the Chen, Roll, and Ross (1986) macroeconomic factors. Performance of a forecasting model based on lagged instrumental variables also indicates that there is no measurable relation between macroeconomic risk and momentum either abroad or in the U.S. Globally, momentum profits are large and statistically reliable in periods of both negative and positive economic growth; these momentum profits reverse over one- to five-year horizons, an action inconsistent with current risk-based explanations.

Keywords: Momentum, Business Cycle, Portfolio Risk

JEL Classification: G12, G14, G15

Suggested Citation

Griffin, John M. and Ji, Susan and Martin, J. Spencer, Momentum Investing and Business Cycle Risk: Evidence from Pole to Pole. Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=459720

John M. Griffin

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-6621 (Phone)

HOME PAGE: http://www.jgriffin.info

Susan Ji

College of Business, Governors State University ( email )

1 University Parkway
University Park, IL 60484
United States

J. Spencer Martin (Contact Author)

University of Melbourne - Faculty of Business and Economics ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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