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Productivity Risk and Industry Momentum

Efdal Ulas Misirli

Financial Management, 2018, vol. 47, issue 3, 739-774

Abstract: A productivity shock identified through a vector autoregression model is a priced risk factor for one‐month industry momentum portfolios and commands a positive risk premium. Stocks in winning industries have greater sensitivity to productivity news, thereby earning higher average returns than stocks in losing industries. This evidence lends support to an Intertemporal Capital Asset Pricing Model (ICAPM) with human wealth. In many specifications, exposure to productivity risk captures more than half of the observed industry momentum profits. This paper studies the sources of profits and attributes the risks of industry momentum portfolios to the behavior of their underlying cash flows.

Date: 2018
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Handle: RePEc:bla:finmgt:v:47:y:2018:i:3:p:739-774