An analysis on the predictability of CAPM beta for momentum returns

Tolga Cenesizoglu, Nicolas Papageorgiou, Jonathan J. Reeves and Haifeng Wu

Journal of Forecasting, 2019, vol. 38, issue 2, 136-153

Abstract: This paper demonstrates that the forecasted capital asset pricing model (CAPM) beta of momentum portfolios explains a large portion of the return, ranging from 40% to 60% for stock‐level momentum, and from 30% to 50% for industry‐level momentum. Beta forecasts are from a realized beta estimator using daily returns over the prior year. Periods such as 1969–1989 have been found in earlier studies to contain abnormal profits from momentum trading; however, we show that these were spuriously generated by measurement error in systematic risk. These results cast further doubt on the ability of standard momentum trading strategies to generate abnormal profits.

Date: 2019
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https://doi.org/10.1002/for.2552

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jforec:v:38:y:2019:i:2:p:136-153

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