Momentum Investing and Business Cycle Risk

Download or read book Momentum Investing and Business Cycle Risk written by John M. Griffin and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine whether momentum profits globally can be explained by macroeconomic risk and address in part whether momentum returns are consistent with risk-based explanations. Profits to momentum strategies only weakly co-move among 40 countries, whether within regions or across continents. Internationally, momentum profits bear basically no statistically or economically significant relation to the Chen, Roll, and Ross (1986) macroeconomic factors. Performance of a forecasting model based on lagged instrumental variables also indicates that there is no measurable relation between macroeconomic risk and momentum either abroad or in the U.S. Globally, momentum profits are large and statistically reliable in periods of both negative and positive economic growth; these momentum profits reverse over one- to five-year horizons, an action inconsistent with current risk-based explanations.