• Working Paper

    • Decomposing Momentum: Eliminating its Crash Component

      Joint work with Hannes Mohrschladt and Susanne Siedhoff

      Abstract: We propose a purely cross-sectional momentum strategy that avoids crash risk and does not depend on the state of the market. To do so, we simply split up the standard momentum return over months t-12 to t-2 at the highest stock price within this formation period. Both resulting momentum return components predict subsequent returns on a stand-alone basis. However, the long-short returns associated with the first component completely avoid negative skewness as the momentum crashes are driven by the second component's short leg dependence on recent loser stocks. The crash-resilient strategy allows for significant momentum profits even in recent years, avoids the latest Covid-19 momentum crash, and is valid in both the US and international stock markets.

      Available at SSRN

    • Risk Premia - The Analysts' Perspective

      Joint work with Hannes Mohrschladt

      Abstract: We examine the time-series and cross-section of stock market risk premia from the perspective of financial analysts. Our novel approach is based on the notion that analysts' stock recommendations reflect both their subjective return expectations and their perceived stock risk. Thus, we can empirically infer presumed risk premia from recommendations and target price implied expected returns. We show that analysts' presumed risk premia are strongly countercyclical such that their correlation with the VIX is 72%. Moreover, they predict future stock market returns and are closely related to the price-dividend ratio and other cyclical state variables. In the cross-section, the presumed risk premia are comparably large for high-beta, small, and value stocks lending support to a risk-based interpretation of these characteristics.

      Available at SSRN