Abstract
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.
DOI
10.1016/j.frl.2016.10.010
Publication Date
2017-02-01
Publication Title
Finance Research Letters
Volume
20
Publisher
Elsevier BV
ISSN
1544-6123
Embargo Period
2024-11-19
First Page
253
Last Page
259
Recommended Citation
Butt, H., & Virk, N. (2017) 'Momentum profits and time varying illiquidity effect', Finance Research Letters, 20, pp. 253-259. Elsevier BV: Available at: https://doi.org/10.1016/j.frl.2016.10.010
