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Momentum profits and time varying illiquidity effect

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  • Butt, Hilal Anwar
  • Virk, Nader Shahzad

Abstract

We study the variations in the US momentum returns using shocks to contemporaneous and lagged market illiquidity. We assert that the momentum strategy is hedged against systematic illiquidity risk. The impact of systematic illiquidity risk on momentum profits is shown to be distinctive from the effect of supplying liquidity. Our results show that the contemporaneous effect of systematic illiquidity dominates the opposite prediction of lagged systematic illiquidity and retains its significance even if variables capturing the time varying exposures of momentum returns to market risk are included in the analysis.

Suggested Citation

  • Butt, Hilal Anwar & Virk, Nader Shahzad, 2017. "Momentum profits and time varying illiquidity effect," Finance Research Letters, Elsevier, vol. 20(C), pages 253-259.
    • Handle: RePEc:eee:finlet:v:20:y:2017:i:c:p:253-259
    DOI: 10.1016/j.frl.2016.10.010
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    References listed on IDEAS

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    Cited by:

    1. Li, Yan & Liang, Chao & L.D. Huynh, Toan, 2022. "A new momentum measurement in the Chinese stock market," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    2. Guillermo Badía & Luis Ferruz & Maria Céu Cortez, 2021. "The performance of social responsible investing from retail investors' perspective: international evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6074-6088, October.
    3. Mehdi Zolfaghari & Bahram Sahabi, 2021. "The impact of oil price and exchange rate on momentum strategy profits in stock market: evidence from oil-rich developing countries," Review of Managerial Science, Springer, vol. 15(7), pages 1981-2023, October.

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    More about this item

    Keywords

    Momentum strategy; Systematic illiquidity risk; Supplying liquidity; Time varying exposures;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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