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Residual momentum

Author

Listed:
  • Blitz, David
  • Huij, Joop
  • Martens, Martin

Abstract

Conventional momentum strategies exhibit substantial time-varying exposures to the Fama and French factors. We show that these exposures can be reduced by ranking stocks on residual stock returns instead of total returns. As a consequence, residual momentum earns risk-adjusted profits that are about twice as large as those associated with total return momentum; is more consistent over time; and less concentrated in the extremes of the cross-section of stocks. Our results are inconsistent with the notion that the momentum phenomenon can be attributed to a priced risk factor or market microstructure effects.

Suggested Citation

  • Blitz, David & Huij, Joop & Martens, Martin, 2011. "Residual momentum," Journal of Empirical Finance, Elsevier, vol. 18(3), pages 506-521, June.
    • Handle: RePEc:eee:empfin:v:18:y:2011:i:3:p:506-521
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    References listed on IDEAS

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