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Int. J. Financial Stud. 2018, 6(2), 49; https://doi.org/10.3390/ijfs6020049

Alpha Momentum and Price Momentum

Finance and Banking, Friedrich-Alexander-Universität Erlangen-Nürnberg, 90403 Nürnberg, Germany
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Received: 19 March 2018 / Revised: 24 April 2018 / Accepted: 1 May 2018 / Published: 8 May 2018
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Abstract

We analyze a novel alpha momentum strategy that invests in stocks based on three-factor alphas which we estimate using daily returns. The empirical analysis for the U.S. and for Europe shows that (i) past alpha has power in predicting the cross-section of stock returns; (ii) alpha momentum exhibits less dynamic factor exposures than price momentum and (iii) alpha momentum dominates price momentum only in the U.S. Connecting both strategies to behavioral explanations, alpha momentum is more related to an underreaction to firm-specific news while price momentum is primarily driven by price overshooting due to momentum trading. View Full-Text
Keywords: alpha momentum; price momentum; stock-specific return; price overshooting; slow information diffusion; reversal alpha momentum; price momentum; stock-specific return; price overshooting; slow information diffusion; reversal
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Hühn, H.L.; Scholz, H. Alpha Momentum and Price Momentum. Int. J. Financial Stud. 2018, 6, 49.

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