Authors: Konstantinos Mamais, Dimitrios Thomakos

Title: Driven by portfolio beta changes and sectoral power in US stock market: Explaining momentum across time and sectors.

Abstract

What drives momentum portfolios? There is an immense literature that deals with the moment approach in portfolio construction and, although one must think that it has been exhausted, it is always of interest to try to explain it with a twist. In this paper we present a careful and detailed analysis of the components of the NASDAQ index, a rather appropriately and timely selection given what’s going on in the financial markets today (the Corona virus pandemic). Our twist consists of a three-pronged approach (a) we examine the role of momentum portfolio performance, beta and Sharpe ratio across different economic sub-periods from January of 1985 to December of 2017 that are identified by clear exogenous events, (b) we examine the time-varying sectoral characteristics of the components of the index and the discuss the post-2007/2008 increase of healthcare companies participation in the index and (c) we perform a careful post-portfolio construction performance attribution to examine the impact of various characteristics of the portfolios themselves and the underlying fundamentals of the portfolios to explain the excess returns of momentum.