TY - JOUR
T1 - Time-varying liquidity and momentum profits
AU - Avramov, Doron
AU - Cheng, Si
AU - Hameed, Allaudeen
N1 - Publisher Copyright:
© Michael G. Foster School of Business, University of Washington 2016.
PY - 2016/12/1
Y1 - 2016/12/1
N2 - A basic intuition is that arbitrage is easier when markets are most liquid. Surprisingly, we find that momentum profits are markedly larger in liquid market states. This finding is not explained by variation in liquidity risk, time-varying exposure to risk factors, or changes in macroeconomic condition, cross-sectional return dispersion, and investor sentiment. The predictive performance of aggregate market illiquidity for momentum profits uniformly exceeds that of market return and market volatility states. While momentum strategies have been unconditionally unprofitable in the United States, in Japan, and in the Eurozone countries in the last decade, they are substantial following liquid market states.
AB - A basic intuition is that arbitrage is easier when markets are most liquid. Surprisingly, we find that momentum profits are markedly larger in liquid market states. This finding is not explained by variation in liquidity risk, time-varying exposure to risk factors, or changes in macroeconomic condition, cross-sectional return dispersion, and investor sentiment. The predictive performance of aggregate market illiquidity for momentum profits uniformly exceeds that of market return and market volatility states. While momentum strategies have been unconditionally unprofitable in the United States, in Japan, and in the Eurozone countries in the last decade, they are substantial following liquid market states.
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U2 - 10.1017/S0022109016000764
DO - 10.1017/S0022109016000764
M3 - Article
AN - SCOPUS:85007329300
SN - 0022-1090
VL - 51
SP - 1897
EP - 1923
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
IS - 6
ER -