Momentum profits and time varying illiquidity effect

Hilal Anwar Butt; Nader Shahzad Virk

doi:10.1016/j.frl.2016.10.010

Momentum profits and time varying illiquidity effect

Hilal Anwar Butt, Nader Shahzad Virk

Research output: Contribution to journal › Article › peer-review

4 Citations (Scopus)

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.

Original language	English
Pages (from-to)	253-259
Number of pages	7
Journal	Finance Research Letters
Volume	20
Early online date	2 Jan 2017
DOIs	https://doi.org/10.1016/j.frl.2016.10.010
Publication status	Published - 1 Feb 2017
Externally published	Yes

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title = "Momentum profits and time varying illiquidity effect",

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.",

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AU - Virk, Nader Shahzad

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N2 - 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.

AB - 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.

KW - Momentum strategy

KW - Supplying liquidity

KW - Systematic illiquidity risk

KW - Time varying exposures

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JF - Finance Research Letters

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Momentum profits and time varying illiquidity effect

Abstract

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