Momentum and default risk. Some results using the jump component

Ana González-Urteaga, Luis Muga and Rafael Santamaria

International Review of Financial Analysis, 2015, vol. 40, issue C, 185-193

Abstract: In this paper we separate the total stock return into its continuous and jump component to test whether stock return predictability should be attributed to omitted risk factors or behavioral finance theories. We extend results from the US market to the Spanish stock market, which, despite being a developed market, presents several differences in terms of stock characteristics, financial system, investor typology and cultural dimensions. The results show that the jump component has significant explanatory power for the premium of three characteristics (size, book-to-market and illiquidity), which is at odds with risk-based explanations. Using the same testing strategy, we try to shed some light on an important controversy concerning the relationship between default risk and momentum. The results suggest that default risk is not the source of momentum returns.

Keywords: Jumps; Momentum; Default risk; Behavioral finance (search for similar items in EconPapers)
JEL-codes: C10 G12 G14 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:40:y:2015:i:c:p:185-193

DOI: 10.1016/j.irfa.2015.05.017

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