Mesdames et Messieurs, momentum performance is not so abnormal after all!
Abstract
This article provides evidence regarding the performance of momentum investment strategies that is consistent with the Neoclassical Theory. More specifically, while momentum investment returns appear orthogonal to systematic risk in the extant literature, this article illustrates that they are due to correlated changes of hedge portfolio systematic risk exposures with market conditions. Momentum portfolios are excellent market timers in both expanding and contracting markets. Their returns however are generally not abnormal when timing is considered in an augmented unconditional Capital Asset Pricing Model (CAPM), while the standard version erroneously considers them to be so, possibly explaining why momentum studies have so far rejected the Neoclassical Theory.