The Bottom-Up Beta of Momentum

21 Pages Posted: 11 Sep 2012 Last revised: 4 Oct 2016

See all articles by Pedro Barroso

Pedro Barroso

CATÓLICA-LISBON School of Business & Economics

Date Written: November 1, 2014

Abstract

A direct measure of the cyclicality of momentum at a given point in time, its bottom-up beta with respect to the market, forecasts both the returns and the risk of the strategy. Challenging a potential risk-based explanation, a highly cyclical momentum portfolio forecasts both higher risk and lower returns for the strategy. The results show robustness out-of-sample (OOS) and controlling for other variables. One predictive regression of monthly momentum returns on its bottom-up beta produces an OOS R-square of 2.41%. This contrasts with the usual negative OOS R-squares of similar predictive regressions for the market excess return.

Keywords: Momentum, time-varying beta, momentum crashes, risk management

JEL Classification: G11, G12, G17

Suggested Citation

Barroso, Pedro, The Bottom-Up Beta of Momentum (November 1, 2014). 29th Australasian Finance and Banking Conference 2016, Available at SSRN: https://ssrn.com/abstract=2144204 or http://dx.doi.org/10.2139/ssrn.2144204

Pedro Barroso (Contact Author)

CATÓLICA-LISBON School of Business & Economics ( email )

Palma de Cima
Lisbon, Lisboa 1649-023
Portugal

HOME PAGE: http://https://clsbe.lisboa.ucp.pt/person/pedro-monteiro-e-silva-barroso

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