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The Distribution of Cross Sectional Momentum Returns When Underlying Asset Returns Are Student’s t Distributed

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  • Oh Kang Kwon

    (Discipline of Finance, Codrington Building (H69), The University of Sydney, Sydney NSW 2006, Australia)

  • Stephen Satchell

    (Trinity College, University of Cambridge, Cambridge CB2 1TQ, UK)

Abstract

In Kwon and Satchell (2018), a theoretical framework was introduced to investigate the distributional properties of the cross-sectional momentum returns under the assumption that the vector of asset returns over the ranking and holding periods were multivariate normal. In this paper, the framework is extended to derive the corresponding results when the asset returns are multivariate Student’s t . In particular, we derive the probability density function and the moments of the cross-sectional momentum returns and examine in detail the special case of two underlying assets to demonstrate that many of the salient features reported in the empirical literature are consistent with the theoretical implications.

Suggested Citation

  • Oh Kang Kwon & Stephen Satchell, 2020. "The Distribution of Cross Sectional Momentum Returns When Underlying Asset Returns Are Student’s t Distributed," JRFM, MDPI, vol. 13(2), pages 1-19, February.
    • Handle: RePEc:gam:jjrfmx:v:13:y:2020:i:2:p:27-:d:316651
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    References listed on IDEAS

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    Cited by:

    1. Oh Kang Kwon & Stephen Satchell, 2021. "Treating cross‐sectional and time series momentum returns as forecasts," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 40(5), pages 834-848, August.
    2. Julia Adamska & Łukasz Bielak & Joanna Janczura & Agnieszka Wyłomańska, 2022. "From Multi- to Univariate: A Product Random Variable with an Application to Electricity Market Transactions: Pareto and Student’s t -Distribution Case," Mathematics, MDPI, vol. 10(18), pages 1-29, September.
    3. Xiao Jiang & Saralees Nadarajah & Thomas Hitchen, 2024. "A Review of Generalized Hyperbolic Distributions," Computational Economics, Springer;Society for Computational Economics, vol. 64(1), pages 595-624, July.
    4. Oh Kang Kwon & Stephen Satchell, 2022. "When Does Pairs Trading Outperform Cross-Sectional Momentum?," JRFM, MDPI, vol. 15(11), pages 1-7, November.

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