Alpha Momentum and Price Momentum

Other publication type


Publication Details

Author(s): Hühn HL, Scholz H
Publication year: 2016


Abstract


We analyze a novel alpha momentum strategy that invests in stocks based on three-factor alphas. In contrast to the common price momentum strategy, our ranking accounts only for this stock-specific component which we estimate using daily returns. The empirical analysis for the U.S. and for Europe shows that i) past alpha has power in predicting the cross-section of stock returns, ii) alpha momentum exhibits less dynamic factor exposures than price momentum and iii) alpha momentum dominates price momentum only in the U.S. Connecting both strategies to behavioral explanations, alpha momentum is more related to an underreaction to firm-specific news while price momentum is primarily driven by price overshooting due to momentum trading. In addition, both strategies are more profitable following periods of optimistic sentiment which can be explained by impediments to the short-selling of loser stocks in the U.S. and by increased momentum trading in winner stocks in Europe.



FAU Authors / FAU Editors

Hühn, Hannah Lea Dr.
Lehrstuhl für Betriebswirtschaftslehre, insbesondere Finanzierung und Banken
Scholz, Hendrik Prof. Dr.
Lehrstuhl für Betriebswirtschaftslehre, insbesondere Finanzierung und Banken


How to cite

APA:
Hühn, H.L., & Scholz, H. (2016). Alpha Momentum and Price Momentum.

MLA:
Hühn, Hannah Lea, and Hendrik Scholz. Alpha Momentum and Price Momentum. 2016.

BibTeX: 

Last updated on 2018-19-04 at 03:00