On the time-varying dynamics of stock and commodity momentum returns

Immo Stadtmüller, Benjamin R. Auer and Frank Schuhmacher

Finance Research Letters, 2022, vol. 46, issue PB

Abstract: Using a state-of-the-art Markov switching framework augmented by popular proxies of arbitrage activity and investor sentiment, we reexamine the dynamics of stock momentum returns and provide a first structured time-series analysis of commodity momentum portfolios. Our study arrives at the important finding that, in contrast to previous studies relying on restrictive static models, we cannot detect persuasive links between momentum returns and such variables in recent data. Consequently, the evolution of momentum returns remains puzzling. Furthermore, putting the behavior of extremes aside, stock and commodity momentum returns exhibit quite similar regime-switching behavior. This supports the frequent statement that the financialization of commodity futures markets has non-trivially linked stock and commodity returns.

Keywords: Momentum investing; Regime-switching; Limits to arbitrage; Investor sentiment (search for similar items in EconPapers)
JEL-codes: C22 C24 G11 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:46:y:2022:i:pb:s154461232100386x

DOI: 10.1016/j.frl.2021.102385

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