Maio, P. and Philip, D. (2018) 'Economic activity and momentum profits : further evidence.', Journal of banking and finance., 88 . pp. 466-482.
We show that economic activity plays an important role in explaining momentum-based anomalies. A simple two-factor model containing the market and alternative indicators of economic activity as risk factors—industrial production, capacity utilization rate, retail sales, and a broad economic index—offers considerable explanatory power for the cross-section of price and industry momentum portfolios. Hence past winners enjoy higher average returns than past losers because they have larger macroeconomic risk. The model compares favorably with popular multifactor models used in the literature. Moreover, our model is consistent with Merton’s Intertemporal CAPM framework, since the macro variables forecast stock market volatility and future economic activity.
|Full text:||(AM) Accepted Manuscript|
Available under License - Creative Commons Attribution Non-commercial No Derivatives.
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|Publisher Web site:||https://doi.org/10.1016/j.jbankfin.2018.01.013|
|Publisher statement:||© 2018 This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/|
|Date accepted:||22 January 2018|
|Date deposited:||24 January 2018|
|Date of first online publication:||31 January 2018|
|Date first made open access:||31 July 2019|
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