Momentum Profits, Factor Pricing, and Macroeconomic Risk

35 Pages Posted: 26 Jul 2005

See all articles by Laura Xiaolei Liu

Laura Xiaolei Liu

Guanghua School of Management, Peking University

Jerold B. Warner

University of Rochester – Simon Business School

Lu Zhang, 张橹

Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: September 2006

Abstract

We study the connection between momentum portfolio returns and shifts in factor loadings on the growth rate of industrial production. Winners have temporarily higher loadings than losers. The loading spread derives mostly from the high, positive loadings of winners. Small stocks have higher loadings than big stocks, and value stocks have higher loadings than growth stocks. Using standard multifactor tests, we present evidence that the growth rate of industrial production is a priced risk factor. In most of our tests, however, the combined effect of factor pricing and risk shifts does not explain a large fraction of momentum returns.

Keywords: Momentum, the growth rate of industrial production, macroeconomic risk, the expected-growth risk

JEL Classification: G12, E44

Suggested Citation

Liu, Laura Xiaolei and Warner, Jerold B. and Zhang, Lu, Momentum Profits, Factor Pricing, and Macroeconomic Risk (September 2006). Ross School of Business Paper No. 1050. Available at SSRN: https://ssrn.com/abstract=753724 or http://dx.doi.org/10.2139/ssrn.753724

Laura Xiaolei Liu

Guanghua School of Management, Peking University ( email )

Peking University
Beijing, Beijing 100871
China

HOME PAGE: http://www.pku.edu.lauraliu.cn/en-home.html

Jerold B. Warner (Contact Author)

University of Rochester – Simon Business School ( email )

Carol Simon Hall 3-160H
Rochester, NY 14627
United States
585-275-2678 (Phone)
585-442-6323 (Fax)

Lu Zhang

Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
585-267-6250 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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