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Alpha Momentum and Price Momentum


Publication Details
Author(s): Hühn H, 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.



Focus Area of Individual Faculties


How to cite
APA: Hühn, H., & Scholz, H. (2016). Alpha Momentum and Price Momentum. .

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

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