Time-varying risk aversion and the profitability of momentum trades
Abstract
We show that time-varying risk aversion serves as a significant predictor of stock market momentum in the U.S. and globally. Risk aversion is found to be a robust predictor of momentum returns even after controlling for various well established stock market predictors and absorbs the predictive power of market volatility. The findings imply that momentum strategies can be enhanced by conditioning trades on the degree of risk aversion in the marketplace.
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Copyright (c) 2020 Riza Demirer, Shrikant Jategaonkar
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