Publication Type
Working Paper
Version
publishedVersion
Publication Date
10-2019
Abstract
We document economically large momentum profits when sorting ETFs on returns over the past two to four years. A value-weighted, long-short strategy based on ETF momentum delivers Carhart (1997) four-factor alphas of up to 1.20% per month. Neither cross-sectional stock momentum nor co-variation with macroeconomic and liquidity risks can explain ETF momentum. Instead, the post-holding period returns are most consonant with the behavioral story of delayed overreaction. While ETF momentum survives multiple adjustments for transaction costs, it may be difficult to arbitrage as the profits are volatile and concentrated in ETFs with high idiosyncratic volatility or that hold low-analyst-coverage stocks.
Keywords
ETFs, Exchange traded funds, momentum, overreaction
Discipline
Finance and Financial Management
Research Areas
Finance
First Page
1
Last Page
51
Publisher
SSRN
Citation
LI, Frank Weikai; TEO, Song Wee Melvyn; and YANG, Chloe Chunliu.
ETF momentum. (2019). 1-51.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/6446
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.