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A critique of momentum anomalies

Thiago de Oliveira Souza ()
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Thiago de Oliveira Souza: Department of Business and Economics, Postal: University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark, http://www.sdu.dk/staff/tsouza

No 5/2019, Discussion Papers of Business and Economics from University of Southern Denmark, Department of Business and Economics

Abstract: This paper offers theoretical, empirical, and simulated evidence that momentum regularities in asset prices are not anomalies. Within a general, frictionless, rational expectations, risk-based asset pricing framework, riskier assets tend to be in the loser portfolios after (large) increases in the price of risk. Hence, the risk of momentum portfolios usually decreases with the prevailing price of risk, and their risk premiums are approximately negative quadratic functions of the price of risk (and the market premium) theoretically truncated at zero. The best linear (CAPM) function describing this relation unconditionally has exactly the negative slope and positive intercept documented empirically.

Keywords: Momentum; risk; puzzle; ranking; conditional (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk, nep-rmg and nep-upt
Date: 2019-02-20
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