IDEAS home Printed from https://ideas.repec.org/a/taf/apfiec/v24y2014i11p753-762.html
   My bibliography  Save this article

Momentum strategy and credit risk

Author

Listed:
  • Su-Lien Lu
  • Kuo-Jung Lee
  • Chia-Chang Yu

Abstract

The article first focused on the traditional momentum strategies, and the distance-to-default of the KMV (Kealhofer, McQuown and Vasicek) model was later applied as the proxy of credit risk. Then, based on the credit risk, two factors January effect and business cycle were added to investigate the momentum effect on them and credit risk. Empirical results indicated that investment portfolios had the momentum effects by traditional momentum strategies. After the credit risk was added, when the high-credit-risk group applied the momentum strategies in the mid- and long-term holding periods, significant excess return occurred. For low- and medium-credit-risk groups, the momentum profits only exist in 36-months holding periods. In addition, when credit risk was taken as the basis, and the January effect was included, the study found that positive momentum profits only took place in the low- and medium-credit-risk groups in 36-months holding period. Finally, when credit risk was taken as the basis, and business cycle was included, momentum profits took place during the recession period. Consequently, we found that momentum strategy has different influence on three credit-risk groups. Investors should consider the credit-risk characteristics of their investment portfolio when employing the momentum strategy.

Suggested Citation

  • Su-Lien Lu & Kuo-Jung Lee & Chia-Chang Yu, 2014. "Momentum strategy and credit risk," Applied Financial Economics, Taylor & Francis Journals, vol. 24(11), pages 753-762, June.
  • Handle: RePEc:taf:apfiec:v:24:y:2014:i:11:p:753-762
    DOI: 10.1080/09603107.2014.904487
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/09603107.2014.904487
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/09603107.2014.904487?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ahmed Imran Hunjra & Tahar Tayachi & Rashid Mehmood & Sidra Malik & Zoya Malik, 2020. "Impact of Credit Risk on Momentum and Contrarian Strategies: Evidence from South Asian Markets," Risks, MDPI, vol. 8(2), pages 1-14, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:apfiec:v:24:y:2014:i:11:p:753-762. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAFE20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.