Momentum profits and time varying illiquidity effect
Date
2017-02Author
Butt, HA
Virk, Nader
Subject
Momentum strategy Systematic illiquidity risk Supplying liquidity Time varying exposures
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Show full item recordAbstract
We study the variations in the US momentum returns using shocks to contemporaneous and lagged market illiquidity. We assert that the momentum strategy is hedged against systematic illiquidity risk. The impact of systematic illiquidity risk on momentum profits is shown to be distinctive from the effect of supplying liquidity. Our results show that the contemporaneous effect of systematic illiquidity dominates the opposite prediction of lagged systematic illiquidity and retains its significance even if variables capturing the time varying exposures of momentum returns to market risk are included in the analysis.
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Publisher
Elsevier BV
Journal
Finance Research Letters
Volume
20
Pagination
253-259
Number
C
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