Momentum Profits, Non-Normality Risks and the Business Cycle

39 Pages Posted: 15 Jul 2005 Last revised: 5 May 2008

See all articles by Ana-Maria Fuertes

Ana-Maria Fuertes

Bayes Business School, City, University of London

Joëlle Miffre

Audencia Business School

Wooi Hou Tan

Cyberring Ltd.

Date Written: July 1, 2005


The paper examines the role of non-normality risks in explaining the momentum puzzle of equity returns. It shows that momentum profits are not normally distributed and, relatedly, that the momentum profitability is partly a compensation for systematic negative skewness risk in line with market efficiency. This finding is pervasive across nine trading strategies that combine different holding and ranking periods and is reinforced when time dependencies in abnormal returns and risks are explicitly modeled. The analysis also reveals that the market and skewness risks of momentum portfolios evolve over the business cycle in a manner that is consistent with market timing and risk aversion. While non-normality risks matter, a large proportion of the momentum profits remains unexplained which may provide comfort to behavioural theorists.

Keywords: Momentum strategy, Abnormal returns, Skewness, Conditional asset pricing

JEL Classification: G12, G14

Suggested Citation

Fuertes, Ana-Maria and Miffre, Joelle and Tan, Wooi Hou, Momentum Profits, Non-Normality Risks and the Business Cycle (July 1, 2005). Applied Financial Economics, Forthcoming, Cass Business School Research Paper, Available at SSRN: or

Ana-Maria Fuertes (Contact Author)

Bayes Business School, City, University of London ( email )

Faculty of Finance
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 207 477 0186 (Phone)
+44 207 477 8881 (Fax)

HOME PAGE: http://

Joelle Miffre

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312

Wooi Hou Tan

Cyberring Ltd. ( email )

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