Momentum Profits and Non-Normality Risks

The paper examines the role of non-normality risks in explaining the momentum puzzle of equity returns.


Ana-Maria Fuertes

Associate Professor of Finance, Cass Business School, City University London

Joelle Miffre

Professor of Finance, EDHEC Business School

Wooi-Hou Tan

Director, Cyberring Ltd, London

It shows that momentum returns are not normally distributed. About 70 basis points of the annual momentum profits can be attributed to systematic skewness risk. This finding is pervasive across nine strategies and is reinforced when time dependencies in abnormal returns and risks are explicitly modeled. The analysis also reveals that the market and skewness risks of momentum portfolios evolve over the business cycle in a manner that is consistent with market timing and risk aversion. While the momentum puzzle still remains, these findings are in line with market efficiency.
Momentum Profits and Non-Normality Risks...
(-1.00 B)
Type: Working paper
Date: le 05/02/2007
Extra information : Pour plus d'informations, nous vous prions de vous adresser à Joanne Finlay, Direction de la recherche de l'EDHEC [] Les opinions exprimées sont celles de l'auteur et n'engagent pas la responsabilité de l'EDHEC.
Research Cluster : Finance

See Also

Bond Portfolio Optimization in the Presence of Duration Constraints - EDHEC-Risk Institute research article in the Journal of Fixed Income
- 19-07-2018
We are pleased to enclose an EDHEC-Risk Institute research article published in the...
Lionel Martellini discussed ageing population: goal-based investing and its application to the retirement problem
- 10-07-2018
Lionel Martellini, Professor of Finance at EDHEC Business School and Director of EDHEC-...
[EDHEC Experience] Light on the first urban Lab of Latin America
- 09-07-2018
Wide Open: in the explorers' shoes The third stopover of the Wide Open project has been...
EDHECInfra Days: Infrastructure Investors need proper benchmarks
- 05-07-2018
Earlier this month we held the first EDHECinfra Days event in London, bringing together...