Premium
Time‐series and cross‐sectional momentum in anomaly returns
Author(s) -
Wang Feifei,
Yan Xuemin Sterling,
Zheng Lingling
Publication year - 2021
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12290
Subject(s) - economics , anomaly (physics) , econometrics , limits to arbitrage , momentum (technical analysis) , arbitrage , volatility (finance) , capital asset pricing model , stock (firearms) , financial economics , market liquidity , trading strategy , persistence (discontinuity) , monetary economics , physics , geology , geography , archaeology , condensed matter physics , geotechnical engineering
We find strong evidence of time‐series and cross‐sectional momentum in the long–short returns of a comprehensive sample of anomalies. Strategies that exploit such persistence deliver significant abnormal returns that are robust to the stock momentum effect, cannot be explained by traditional asset‐pricing models, and are more pronounced when arbitrage capital is scarcer or market liquidity is lower. Momentum in anomaly returns dissipates but does not reverse, in the long‐run. Our findings are consistent with limits‐to‐arbitrage and slow‐moving capital causing mispricing to persist. Supporting this explanation, we find that both the level and persistence of anomaly returns are positively related to idiosyncratic volatility.