What drives 12-month (with skip-month) momentum and 1-month reversal effects among U.S. common stock returns? In their July 2021 paper entitled "Mapping out Momentum", Yimou Li and David Turkington decompose momentum and reversal effects into distinct industry/sector, factor (size, value, profitability, investment) and stock-specific contributions. In addition to full-sample results, they look at:
- High and low volatility states, as defined by a threshold of 25 for average daily CBOE Volatility Index (VIX) during the month of stock return measurement.
- Contributions of past winners versus past losers.
- Two subsamples with breakpoint December 2009.
They focus on S&P 500 stocks to avoid concerns that any anomalies are due to market frictions or are not exploitable on a large scale. They assume a 3-day implementation lag in computing next-month returns. They examine statistical significance (t-statistic) rather than magnitude of anomaly returns. Using S&P 500 stock, sector/industry and factor data and daily VIX levels during January 1995 through December 2020, they find that:
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