Credit Rating and the Momentum Anomaly
The momentum anomaly refers to the fact that a strategy of buying past winners and selling past losers produces returns that are not explained by the Capital Asset Pricing Model framework. Proponents of the efficient market hypothesis (EMH) attribute the momentum anomaly to risk factors that are not captured in Beta, while opponents point to the anomaly as evidence against the EMH.
In the October 2007 Journal of Finance, Avromov et. al. find that the influence of momentum is limited to a small sample (4% of market capitalization) of companies with high credit risk. This study offers support to the efficient market hypothesis and the argument that the excess returns are attributable to a risk factor (in this case, credit quality.)
For more information, see all articles on: Fundamental Analysis, Investing in Stocks, Investment Returns, Momentum Strategies, Performance Measurement, Research See also:
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
