Momentum and Autocorrelation in Stock Returns

Jonathan Lewellen
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Jonathan Lewellen: MIT Sloan School of Management

The Review of Financial Studies, 2002, vol. 15, issue 2, 533-564

Abstract: This article studies momentum in stock returns, focusing on the role of industry, size, and book-to-market (B-M) factors. Size and B-M portfolios exhibit momentum as strong as that in individual stocks and industries. The size and B-M portfolios are well diversified, so momentum cannot be attributed to firm- or industry-specific returns. Further, industry, size, and B-M portfolios are negatively autocorrelated and cross-serially correlated over intermediate horizons. The evidence suggests that stocks covary "too strongly" with each other. I argue that excess covariance, not underreaction, explains momentum in the portfolios. Copyright 2002, Oxford University Press.

Date: 2002
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