Style-Induced Return Comovement and Risk Premia

Qiongwen Lei, Zhenfeng Peng (), Chunchi Wu () and Runze Zhang ()
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Qiongwen Lei: Department of Accounting and Finance, Romain College of Business, University of Southern Indiana, Evansville, Indiana, USA
Zhenfeng Peng: School of Economics and Management, Southwest Jiaotong University, Chengdu, Sichuan, China
Chunchi Wu: Department of Finance, School of Management, University at Buffalo, Buffalo, New York, USA
Runze Zhang: Department of Economics, University at Buffalo, Buffalo, New York, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2024, vol. 27, issue 04, 1-26

Abstract: Investors and professional money managers typically categorize assets into different styles to facilitate portfolio management and capital allocations. As market participants move funds among assets of different styles based on their relative performance, correlated trading generates return comovement and style momentum, and affects risk premia. This paper reviews existing literature on style investing, and presents new evidence in a large bond market. The paper shows that style is an important factor that helps explain return comovement, momentum and risk premia in a bond market traditionally dominated by institutional and long-term investors thought to be less behaviorally biased.

Keywords: Style investing; comovement; style momentum; behavioral biases; rating recalibration; return predictability; systematic risk; asset pricing (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S0219091524500267

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