Comomentum: Inferring Arbitrage Activity from Return Correlations

• 成果类型: Article
• 署名作者: Lou, Dong; Polk, Christopher
• 署名单位: University of London; London School Economics & Political Science
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhab117
• 发表日期: 2022
• 页码: 3272
• 关键词: HEDGE FUNDS; momentum; RISK; performance; strategies; GROWTH

摘要

We propose a novel measure of arbitrage activity to examine whether arbitrageurs can have a destabilizing effect on the stock market. We focus on stock price momentum, a classic example of a positive-feedback strategy that our theory predicts can be destabilizing. Our measure, dubbed comomentum, is the high-frequency abnormal return correlation among stocks on which a typical momentum strategy would speculate. When comomentum is low, momentum strategies are stabilizing, reflecting an underreaction phenomenon that arbitrageurs correct. When comomentum is high, the returns on momentum stocks strongly revert, reflecting prior overreaction from crowded momentum trading that pushes prices away from fundamentals.