Habitat Momentum

Abstract

In this paper we find strong empirical evidence that stocks connected by common ownership with well-performing stocks tend to perform well in the following periods. Based on this observation, we introduce a new strategy – dubbed habitat momentum – and show for US stock price data from the period 1980-2014 that it yields 1.1% risk-adjusted alpha per month and is not sensitive to size nor liquidity of constituents as well as other well-known pricing factors. Interestingly, the habitat momentum effect provides empirical support for the Vayanos and Woolley (2013) model of institutional momentum.

Keywords: momentum, comovement, institutional ownership

JEL Classification: G12, G02, G23