Abstract
Momentum strategies have historically delivered large alphas, yet they also displayed significant time-variation that is not very well understood. I document that expected momentum profits vary negatively with the formation period return difference between past winners and losers, which I term the momentum gap. A one standard deviation increase in the momentum gap predicts a 1.29% decrease in the monthly momentum return after controlling for existing predictors. I find consistent results across 21 international stock markets. Following the simple real-time strategy of investing in momentum only when the momentum gap is below the 80th percentile generates monthly returns of 1.28%.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
