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Abstract
The momentum premium is pervasive across international markets and different asset classes; however the drivers of this premium are yet to be established. This paper contributes to the literature by examining the relationship between a leading economic indicator, return dispersion, and the momentum premium across regions. We document a strong relationship between return dispersion and the momentum premium using both ex-post and ex-ante empirical methods. This relationship is robust to the inclusion of a set of control variables and an alternate specification of return dispersion. We employ a conditional momentum strategy that scales the unconditional momentum strategy by the level of return dispersion and find that the conditional momentum strategy outperforms the unconditional momentum strategy in all regions. The results presented in this paper document the dynamic relationship between risk and the momentum premium.
Published Version
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