Macroeconomic risks, idiosyncratic risks and momentum profits

This paper investigates the presence of momentum return when priced for risk factors. Using a sample period from 1926 through 2005 for all stocks listed in the NYSE, AMEX and NASDAQ we show that significant momentum return remains both at the portfolio level and at the individual stock level. We report positive and significant alpha of 0.009 when Fama-French three factors and macroeconomic risk factors are used at the portfolio level. At the individual stock level, though Fama-French factors cannot eliminate momentum return, the premium diminishes when macroeconomic variables are used. The result is more pronounced when lagged variables are used and during market upturn.