Momentum and downside risk

Byoung-Kyu Min and Tong Suk Kim

Journal of Banking & Finance, 2016, vol. 72, issue S, S104-S118

Abstract: We examine whether time-variation in the profitability of momentum strategies is related to variation in macroeconomic conditions. We find reliable evidence that the momentum strategy exposes investors to greater downside risk. Momentum strategies deliver economically large and statistically reliable negative profits in bad economic states when the expected market risk premium is high, whereas positive profits in good economic states when the expected market risk premium is low. Our results are robust to alternative constructions of momentum portfolios, out-of-sample estimation of the expected market risk premium, and after controlling for the January effect, lagged market return, and investor sentiment.

Keywords: Momentum; Economic state; Expected market risk premium (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:72:y:2016:i:s:p:s104-s118

DOI: 10.1016/j.jbankfin.2016.04.005

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