Higher moments and industry momentum returns

Abstract

Motivated by the demonstrated profitability of industry momentum strategies and the established explanatory power of higher moments for momentum returns at the firm level, we investigate the relation between higher moments and industry momentum returns. We use January 1970 to December 2021 data on 48 US industry return series from Kenneth French’s data library to calculate realised skewness and kurtosis and to construct double-sort trading strategies over dynamic trading horizons up to 24 months. The results reveal that the lowest-skewness group earns the strongest industry momentum returns over most trading horizons, while kurtosis is positively related to industry momentum returns. Additional testing reveals that these relations are uncaptured by the market, size, value, investment, profitability, and firm-level momentum risk factors in common asset pricing models.