Impact of Credit Risk and Business Cycles on Momentum Returns

Sirajum Munira Sarwar (), Sharon Xiaowen Lin () and Yaz Gülnur Muradoǧlu ()
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Sirajum Munira Sarwar: Bentley University
Sharon Xiaowen Lin: Faculty of Health Sciences, University of Southampton
Yaz Gülnur Muradoǧlu: University of London
Authors registered in the RePEc Author Service: Yaz Gulnur Muradoglu

Chapter Chapter 2 in Handbook of Recent Advances in Commodity and Financial Modeling, 2018, pp 17-39 from Springer

Abstract: Abstract In this paper, we show that significant momentum returns generate from credit-rated stocks across business cycles. The generation of momentum earned from speculative-grade stocks is on average 1.27% per month and are more prevalent during contraction periods in which they earn 1.61% per month. We also find that investment-grade stocks earn on average momentum returns of 0.85% per month and 1.14% per month during contractions. Higher momentum returns are unexplained by macroeconomic variables during contractions such as the 2008 recession. Our findings conclude that momentum return is due to high uncertainty associated with the increased credit risk of stocks and across business cycles.

Keywords: Credit-rated stocks; Business cycles; Momentum; Uncertainty; G11; G12; G19 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/978-3-319-61320-8_2

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