Risk adjustment and momentum sources

Jun Wang and Yangru Wu ()

Journal of Banking & Finance, 2011, vol. 35, issue 6, 1427-1435

Abstract: We show that the conventional procedure of risk adjustment by running full-sample time-series Fama-French three-factor regressions is not appropriate for momentum portfolios because the procedure fails to allow for the systematic dynamics of momentum portfolio factor loadings. We propose a simple procedure to adjust risks associated with the Fama-French three factors for momentum portfolios. Using our proposed method, the Fama-French three factors can explain approximately 40% of momentum profits generated by individual stocks and nearly all of momentum returns from style portfolios.

Keywords: Momentum; Risk; adjustment; Market; efficiency (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:6:p:1427-1435

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