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Style-Induced Return Comovement and Risk Premia

Author

Listed:
  • Qiongwen Lei

    (Department of Accounting and Finance, Romain College of Business, University of Southern Indiana, Evansville, Indiana, USA)

  • Zhenfeng Peng

    (School of Economics and Management, Southwest Jiaotong University, Chengdu, Sichuan, China)

  • Chunchi Wu

    (Department of Finance, School of Management, University at Buffalo, Buffalo, New York, USA)

  • Runze Zhang

    (Department of Economics, University at Buffalo, Buffalo, New York, USA)

Abstract

Investors and professional money managers typically categorize assets into different styles to facilitate portfolio management and capital allocations. As market participants move funds among assets of different styles based on their relative performance, correlated trading generates return comovement and style momentum, and affects risk premia. This paper reviews existing literature on style investing, and presents new evidence in a large bond market. The paper shows that style is an important factor that helps explain return comovement, momentum and risk premia in a bond market traditionally dominated by institutional and long-term investors thought to be less behaviorally biased.

Suggested Citation

  • Qiongwen Lei & Zhenfeng Peng & Chunchi Wu & Runze Zhang, 2024. "Style-Induced Return Comovement and Risk Premia," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 27(04), pages 1-26, December.
    • Handle: RePEc:wsi:rpbfmp:v:27:y:2024:i:04:n:s0219091524500267
    DOI: 10.1142/S0219091524500267
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