The Momentum Gap and Return Predictability

• 成果类型: Article
• 署名作者: Huang, Simon
• 署名单位: University of Massachusetts System; University of Massachusetts Amherst
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhab093
• 发表日期: 2022
• 页码: 3303
• 关键词: cross-section; investment strategies; DELISTING BIAS; MARKET; RISK; LIMITS; size; heteroskedasticity; profitability; performance

摘要

The formation period return difference between past winners and losers, which I call the momentum gap, negatively predicts momentum profits. I document this for the U.S. stock market and find consistent results across 21 major international markets. A one-standard-deviation increase in the momentum gap predicts a 1.25% decrease in the monthly momentum return after controlling for existing predictors. This predictability extends up to 5 years for static momentum portfolios, consistent with time-varying investor biases. Following the simple real-time strategy of investing in momentum only when the momentum gap is below the 80th percentile delivers a Sharpe ratio of 0.78.