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A critique of momentum anomalies

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This paper offers theoretical, empirical, and simulated evidence that momentum regularities in asset prices are not anomalies. Within a general, frictionless, rational expectations, risk-based asset pricing framework, riskier assets tend to be in the loser portfolios after (large) increases in the price of risk. Hence, the risk of momentum portfolios usually decreases with the prevailing price of risk, and their risk premiums are approximately negative quadratic functions of the price of risk (and the market premium) theoretically truncated at zero. The best linear (CAPM) function describing this relation unconditionally has exactly the negative slope and positive intercept documented empirically.

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  • de Oliveira Souza, Thiago, 2019. "A critique of momentum anomalies," Discussion Papers on Economics 5/2019, University of Southern Denmark, Department of Economics.
    • Handle: RePEc:hhs:sdueko:2019_005
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    Cited by:

    1. de Oliveira Souza, Thiago, 2020. "Observable implications of the conditional CAPM," Discussion Papers on Economics 13/2020, University of Southern Denmark, Department of Economics.
    2. de Oliveira Souza, Thiago, 2020. "Two out-of-sample forecasting models of the equity premium," Discussion Papers on Economics 11/2020, University of Southern Denmark, Department of Economics.

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    More about this item

    Keywords

    Momentum; risk; puzzle; ranking; conditional;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • 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

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