 The distribution of cross sectional momentum returnsOh Kang Kwon and Stephen Satchell Journal of Economic Dynamics and Control, 2018, vol. 94, issue C, 225-241 Abstract: Although there is a vast empirical literature on cross sectional momentum (CSM) returns, there are no known analytical results on their distributional properties due, in part, to the mathematical complexity associated with their determination. In this paper, we derive the density of CSM returns in analytic form, along with moments of all orders, under the assumption that underlying asset returns are multivariate normal. The resulting expressions are highly non-trivial in general and involve truncated normal distributions. The distribution of CSM returns can be formally described as a mixture of the unified skew-normal family of distributions. However, if the asset returns are independent, then the density of the CSM returns is shown to be a mixture of univariate normals. In order to shed light on the general case, we present a detailed analysis of the case of two underlying assets, which is shown to explain many of the key features of CSM returns reported in the empirical literature. Keywords: Cross sectional momentum; Return distribution; Moments (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:94:y:2018:i:c:p:225-241 DOI: 10.1016/j.jedc.2018.06.002 Access Statistics for this article Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok More articles in Journal of Economic Dynamics and Control from Elsevier |
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