Cross-Country Comovement of Momentum Returns

Abstract

This paper examines the sources of cross-country comovement of momentum returns over the 1975-2002 period. Using data on more than 16,000 individual firms across 100 industries from 38 countries, we document the profitability of momentum trading strategies using individual firm returns, industry returns, and industry-adjusted returns. We show that country-neutral momentum returns are significantly correlated across countries and are time-varying. We find that although both across-industry and within-industry momentum is profitable in a large number of countries, comovement among industries cannot explain the comovement of country-neutral momentum returns. However, we find that standard risk factor models do explain a significant portion of the cross-country comovement of momentum returns, even though they do not explain average momentum returns.

JEL Classification: G15, G12