Conventional momentum strategies exhibit substantial time-varying exposures to the Fama and French factors. We show that these exposures can be reduced by ranking stocks on residual stock returns instead of total returns. As a consequence, residual momentum earns risk-adjusted profits that are about twice as large as those associated with total return momentum; is more consistent over time; and less concentrated in the extremes of the cross-section of stocks. Our results are inconsistent with the notion that the momentum phenomenon can be attributed to a priced risk factor or market microstructure effects.
|Keywords||Momentum, Residual returns, Stock-specific returns, Time-varying risk|
|Persistent URL||dx.doi.org/10.1016/j.jempfin.2011.01.003, hdl.handle.net/1765/23275|
Blitz, D.C., Huij, J.J., & Martens, M.P.E.. (2011). Residual momentum. Journal of Empirical Finance. doi:10.1016/j.jempfin.2011.01.003