Momentum Profits and Macroeconomic Risk

Laura X.L. Liu, Jerold B. Warner and Lu Zhang ()

No 11480, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Previous work shows that the growth rate of industrial production is a common macroeconomic risk factor in the cross-section of expected returns. We demonstrate the connection between momentum profits and shifts in factor loadings on this macroeconomic variable. Winners have temporarily higher loadings on the growth rate of industrial production than losers. The loading dispersion derives mostly from the high, positive loadings of winners. Depending on model specification, this loading dispersion can explain up to 40% of momentum profits.

JEL-codes: E44 G12 (search for similar items in EconPapers)
Date: 2005-07
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-mac
Note: AP
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