Time-Varying Expected Momentum Profits
| Résumé |
This paper examines the time variations of expected momentum profits
using a two-state Markov switching model with time-varying
transition probabilities to evaluate the empirical relevance of
recent rational theories of momentum profits. We find that in the
expansion state the expected returns of winner stocks are more
affected by aggregate economic conditions than those of loser
stocks, while in the recession state the expected returns of loser
stocks are more affected than those of winner stocks. Consequently,
expected momentum profits display strong procyclical variations. We
argue that the observed momentum profits are the realization of
such expected returns and can be interpreted as the procyclicality
premium. We provide a plausible explanation for time-varying
momentum profits through the differential effect of leverage and
growth options across business cycles. |
| Mots-clés |
Momentum; Time-varying expected returns; Markov switching regression model; Business cycle; Procyclicality; Growth options |
| Citation | Min, B. K. (2014). Time-Varying Expected Momentum Profits. Journal of Banking and Finance, 49, 191-215. |
| Type | Article de périodique (Anglais) |
| Date de publication | 1-12-2014 |
| Nom du périodique | Journal of Banking and Finance |
| Volume | 49 |
| Pages | 191-215 |