Working Paper: NBER ID: w25551
Authors: Sina Ehsani; Juhani T. Linnainmaa
Abstract: Momentum in individual stock returns emanates from momentum in factor returns. Most factors are positively autocorrelated: the average factor earns a monthly return of 1 basis point following a year of losses and 53 basis points following a positive year. Factor momentum explains all forms of individual stock momentum. Stock momentum strategies indirectly time factors: they profit when the factors remain autocorrelated, and crash when these autocorrelations break down. Our key result is that momentum is not a distinct risk factor; it aggregates the autocorrelations found in all other factors.
Keywords: No keywords provided
JEL Codes: G11; G12; G40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| autocorrelation in factor returns (C22) | profits from cross-sectional momentum strategies (G11) |
| investor sentiment (G41) | performance gap of factors (D29) |
| momentum crashes (E32) | changes in autocorrelations of factor returns (C22) |
| factor momentum (C69) | individual stock momentum (G14) |
| prior returns (C29) | subsequent factor performance (L25) |