EconPapers    
Economics at your fingertips  
 

Cross-sectional factor dynamics and momentum returns

Doron Avramov and Satadru Hore

Journal of Financial Markets, 2017, vol. 32, issue C, 69-96

Abstract: We develop a structural model where joint dynamics of aggregate consumption and asset-specific dividends are governed by correlated state variables. The correlation structure implies distinct cross-sectional exposures of dividends to a long history of consumption growth rates, resulting in variation of consumption beta. Such variation rationalizes momentum crashes per Daniel and Moskowitz (2016), as the consumption beta of the Winner portfolios remain low after the economy recovers from a downturn, while the consumption beta of the Loser portfolios grow quickly. Thus, emerging from a recession, the consumption beta of the momentum strategy decreases, and so does risk premia.

Keywords: Momentum; Cross-Sectional dynamics; Long-run risk; Bayesian filtering (search for similar items in EconPapers)
JEL-codes: G12 C32 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1386418117300137
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:32:y:2017:i:c:p:69-96

Access Statistics for this article

Journal of Financial Markets is currently edited by B. Lehmann, D. Seppi and A. Subrahmanyam

More articles in Journal of Financial Markets from Elsevier
Series data maintained by Dana Niculescu ().

 
Page updated 2017-09-29
Handle: RePEc:eee:finmar:v:32:y:2017:i:c:p:69-96