Uncovering Momentum

Abstract

The explanation of the momentum premium represents an ongoing challenge, triggering the development of multiple risk-based and behavioral models. The paper addresses this puzzle following a systematic divide-and-conquer approach composed from a sequence of top-down steps: dissecting the momentum performance along bull/bear states and winners/losers deciles; identifying the unscaled momentum decile as a basic common block across conventional, time-series and dual momentum strategies; dividing momentum decile into portfolios based on fundamental and technical characteristics, and applying the rolling event-oriented intertemporal analysis. The results transparently and completely explain the momentum premium for 2010-2019 as the sampling of high volatility growth stocks.

Keywords: Momentum premium, top-down approach, event-oriented intertemporal analysis, volatility, fundamental characteristics

JEL Classification: G12, C21, C22