Momentum profits and time varying illiquidity effect

Hilal Anwar Butt and Nader Shahzad Virk

Finance Research Letters, 2017, vol. 20, issue C, 253-259

Abstract: We study the variations in the US momentum returns using shocks to contemporaneous and lagged market illiquidity. We assert that the momentum strategy is hedged against systematic illiquidity risk. The impact of systematic illiquidity risk on momentum profits is shown to be distinctive from the effect of supplying liquidity. Our results show that the contemporaneous effect of systematic illiquidity dominates the opposite prediction of lagged systematic illiquidity and retains its significance even if variables capturing the time varying exposures of momentum returns to market risk are included in the analysis.

Keywords: Momentum strategy; Systematic illiquidity risk; Supplying liquidity; Time varying exposures (search for similar items in EconPapers)
JEL-codes: G10 G12 G15 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:20:y:2017:i:c:p:253-259

DOI: 10.1016/j.frl.2016.10.010

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