Momentum and Downside Risk

50 Pages Posted: 16 Mar 2010 Last revised: 12 Mar 2019

See all articles by Byoung-Kyu Min

Byoung-Kyu Min

Hanyang University

Tong Suk Kim

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Date Written: July 15, 2014

Abstract

We examine whether time-variation in the profitability of momentum strategies is related to variation in macroeconomic conditions. We find reliable evidence that the momentum strategy exposes investors to greater downside risk. Momentum strategies deliver economically large and statistically reliable negative profits in bad economic states when the expected market risk premium is high, whereas positive profits in good economic states when the expected market risk premium is low. Our results are robust to alternative constructions of momentum portfolios, out-of-sample estimation of the expected market risk premium, and after controlling for the January effect, lagged market return, and investor sentiment.

Keywords: Momentum; Economic state; Expected market risk premium

JEL Classification: G12; G14

Suggested Citation

Min, Byoung-Kyu and Kim, Tong Suk, Momentum and Downside Risk (July 15, 2014). Journal of Banking and Finance, Vol. 72, 2016, Available at SSRN: https://ssrn.com/abstract=1570948 or http://dx.doi.org/10.2139/ssrn.1570948

Byoung-Kyu Min (Contact Author)

Hanyang University ( email )

Seoul
Korea, Republic of (South Korea)

Tong Suk Kim

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro, Dongdaemoon-gu
Seoul 02455
Korea, Republic of (South Korea)

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