Alpha Momentum and Price Momentum

Hannah Lea Hühn and Hendrik Scholz
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Hannah Lea Hühn: Finance and Banking, Friedrich-Alexander-Universität Erlangen-Nürnberg, 90403 Nürnberg, Germany
Hendrik Scholz: Finance and Banking, Friedrich-Alexander-Universität Erlangen-Nürnberg, 90403 Nürnberg, Germany

IJFS, 2018, vol. 6, issue 2, 1-28

Abstract: We analyze a novel alpha momentum strategy that invests in stocks based on three-factor alphas which we estimate using daily returns. The empirical analysis for the U.S. and for Europe shows that (i) past alpha has power in predicting the cross-section of stock returns; (ii) alpha momentum exhibits less dynamic factor exposures than price momentum and (iii) alpha momentum dominates price momentum only in the U.S. Connecting both strategies to behavioral explanations, alpha momentum is more related to an underreaction to firm-specific news while price momentum is primarily driven by price overshooting due to momentum trading.

Keywords: alpha momentum; price momentum; stock-specific return; price overshooting; slow information diffusion; reversal (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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