The Acceleration Effect and Gamma Factor in Asset Pricing

Diego Ardila-Alvarez, Zalàn Forrò and Didier Sornette
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Diego Ardila-Alvarez: ETH Zurich
Zalàn Forrò: ETH Zurich
Didier Sornette: ETH Zurich and Swiss Finance Institute

No 15-30, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We report strong evidence that changes of momentum, i.e. ``acceleration'', defined as the first difference of successive returns, provide better performance and higher explanatory power than momentum. The corresponding $\Gamma$-factor explains the momentum-sorted portfolios entirely but not the reverse. Thus, momentum can be considered an imperfect proxy for acceleration, and its success can be attributed to its correlation to the predominant $\Gamma$-factor. $\Gamma$-strategies based on the ``acceleration'' effect are on average profitable and beat momentum-based strategies in two out of three cases, for a large panel of parameterizations. The ``acceleration'' effect and the $\Gamma$-factor profit from transient non-sustainable accelerating (upward or downward) log-prices associated with positive feedback mechanisms.

Keywords: Asset pricing; momentum; positive feedbacks; acceleration; investment strategies (search for similar items in EconPapers)
JEL-codes: G01 G11 G12 G17 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2015-08
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1530

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