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Rationalizing Momentum Interactions

dc.contributor.authorAvramov, Doron
dc.contributor.authorHore, Satadru
dc.identifier.citationAvramov, Doron, and Satadru Hore, 2007, Rationalizing Momentum Interactions.en
dc.description.abstractMomentum profitability concentrates in high information uncertainty and high credit risk firms and is virtually nonexistent otherwise. This paper rationalizes such momentum interactions in equilibrium asset pricing. In our paradigm, dividend growth is mean reverting, expected dividend growth is stochastic and highly persistent, the representative agent is endowed with stochastic differential utility of Duffie and Epstein (1992), and leverage, which proxies for credit risk, is modeled based on the Abel's (1999) formulation. Using reasonable risk aversion levels we produce the observational momentum effects. In particular, momentum profitability is especially high in the interaction between high levered and risky cash flow firms. It rapidly deteriorates and ultimately disappears as leverage or cash flow risk diminishes.en
dc.format.extent229201 bytes
dc.subjectmomentum profitabilityen
dc.subjectcredit risken
dc.subjectequilibrium asset pricingen
dc.titleRationalizing Momentum Interactionsen
dc.typeWorking Paperen
dc.relation.isAvailableAtRobert H. Smith School of Businessen_us
dc.relation.isAvailableAtDigital Repository at the University of Marylanden_us
dc.relation.isAvailableAtUniversity of Maryland (College Park, MD)en_us

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