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Momentum and macroeconomic state variables

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  • Stephan Kessler
  • Bernd Scherer

Abstract

We find strong evidence that momentum across asset classes is driven by macroeconomic state variables. By reacting to changes in the macroeconomic environment, the strategy performs particularly well in times of economic distress. This result is interesting for practitioners and academics alike the success of an investment strategy that simultaneously looks at relative momentum across currencies, bonds, real estate, commodities, and equities can be interpreted as a payoff for rational investors hedging against predictable changes in the investment opportunity set. Our results allow us to establish a link between momentum and more sophisticated predictive regressions. Copyright Swiss Society for Financial Market Research 2013

Suggested Citation

  • Stephan Kessler & Bernd Scherer, 2013. "Momentum and macroeconomic state variables," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 27(4), pages 335-363, December.
    • Handle: RePEc:kap:fmktpm:v:27:y:2013:i:4:p:335-363
    DOI: 10.1007/s11408-013-0215-8
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    More about this item

    Keywords

    Momentum; Macroeconomic factors; Trading strategy; Asset allocation; Two-way sorts; G12; G14; G15;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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