Macroeconomic momentum and cross-sectional equity market indices

Zhang, Y., Kappou, K. ORCID: https://orcid.org/0000-0002-5047-8104 and Urquhart, A. ORCID: https://orcid.org/0000-0001-8834-4243 (2024) Macroeconomic momentum and cross-sectional equity market indices. Journal of International Financial Markets, Institutions and Money, 92. 101974. ISSN 1042-4431 doi: 10.1016/j.intfin.2024.101974

Abstract/Summary

Momentum is a well-known and studied artefact of financial markets. In this paper, we investigate whether momentum in a country’s macroeconomic variables is related to the future performance of equities in that country. We find that the past economic trends of a country’s fundamentals are positively associated with the equity market index returns. Based on that, an economic momentum portfolio of buying (selling) equity index in countries with relatively strong (weak) economic past trends exhibits an annualised Sharpe ratio of 0.87. The economic momentum portfolio outperforms benchmarks regarding rewards to variability and maximum drawdown and yields an annualised alpha of 3.72%, leaving 95% of the returns unexplained by the benchmarks.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/115660
Identification Number/DOI	10.1016/j.intfin.2024.101974
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Publisher	Elsevier
Download/View statistics	View download statistics for this item