A conditional multifactor analysis of return momentum

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

35 Scopus Citations
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Detail(s)

Original languageEnglish
Pages (from-to)1675-1696
Journal / PublicationJournal of Banking and Finance
Volume26
Issue number8
Publication statusPublished - 2002

Abstract

Although the Fama-French three-factor model captures most CAPM anomalies, it still fails to explain return momentum. This paper shows that the incorporation of conditioning information into an asset-pricing model is one way to capture return momentum. Results from the conditional regression with linear exposures in the instruments show clear evidence that both small minus big (SMB) and high minus low (HML) risks are time varying and that momentum and reversal return patterns have different time-varying risk characteristics. The conditional Fama-French regression model seems, however, to remain misspecified. Conversely, when the linearity assumption is relaxed and cross-sectional restrictions are imposed, the conditional pricing model appears to capture both short-term momentum and long-term reversal. © 2002 Elsevier Science B.V. All rights reserved.

Research Area(s)

  • Conditional asset pricing, Conditioning information, Multifactor model, Return momentum, Return reversal