Asymmetric effect of style comovement on momentum

Abstract

This study examines whether the impact of style investing on momentum profits depends on market states. By measuring the style comovement to evaluate the influence of style investing on momentum, our evidence shows that the momentum profits on high style comovement portfolios are higher than on low style comovement portfolios. The momentum strategies on high style comovement portfolios are more profitable when the market is optimistic. Our findings demonstrate that style chasing behavior by investors is reinforced following increased market optimism, thus generating an asymmetric influence of style investing in momentum profits.