Value and momentum from investors’ perspective: Evidence from professionals’ risk-ratings

Christoph Merkle; Christoph J. Sextroh

doi:10.1016/j.jempfin.2021.03.004

Value and momentum from investors’ perspective: Evidence from professionals’ risk-ratings

Christoph Merkle^*, Christoph J. Sextroh

^*Corresponding author for this work

Department of Economics and Business Economics

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review

1 Citation (Scopus)

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Abstract

We conduct a controlled experiment with financial professionals to examine more directly whether value and momentum reflect risk factors or mispricing. By eliciting their risk perceptions and return expectations for company stocks, we identify what constitutes a risky investment from the point of investors. Contrary to the risk factor hypothesis, value and momentum stocks are regarded as less risky. However, other factors, such as size and beta, fall in line with their traditional interpretation as risk factors. Consistent with empirical findings, we observe higher return expectations for momentum stocks, raising questions on analysts believing in a risk–return trade-off.

Original language	English
Journal	Journal of Empirical Finance
Volume	62
Pages (from-to)	159-178
Number of pages	20
ISSN	0927-5398
DOIs	https://doi.org/10.1016/j.jempfin.2021.03.004
Publication status	Published - Jun 2021

Keywords

Anomaly
Financial analysts
Momentum
Risk factor
Value

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1-s2.0-S0927539821000232-mainFinal published version, 824 KBLicence: CC BY-NC-ND

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title = "Value and momentum from investors{\textquoteright} perspective: Evidence from professionals{\textquoteright} risk-ratings",

abstract = "We conduct a controlled experiment with financial professionals to examine more directly whether value and momentum reflect risk factors or mispricing. By eliciting their risk perceptions and return expectations for company stocks, we identify what constitutes a risky investment from the point of investors. Contrary to the risk factor hypothesis, value and momentum stocks are regarded as less risky. However, other factors, such as size and beta, fall in line with their traditional interpretation as risk factors. Consistent with empirical findings, we observe higher return expectations for momentum stocks, raising questions on analysts believing in a risk–return trade-off.",

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N2 - We conduct a controlled experiment with financial professionals to examine more directly whether value and momentum reflect risk factors or mispricing. By eliciting their risk perceptions and return expectations for company stocks, we identify what constitutes a risky investment from the point of investors. Contrary to the risk factor hypothesis, value and momentum stocks are regarded as less risky. However, other factors, such as size and beta, fall in line with their traditional interpretation as risk factors. Consistent with empirical findings, we observe higher return expectations for momentum stocks, raising questions on analysts believing in a risk–return trade-off.

AB - We conduct a controlled experiment with financial professionals to examine more directly whether value and momentum reflect risk factors or mispricing. By eliciting their risk perceptions and return expectations for company stocks, we identify what constitutes a risky investment from the point of investors. Contrary to the risk factor hypothesis, value and momentum stocks are regarded as less risky. However, other factors, such as size and beta, fall in line with their traditional interpretation as risk factors. Consistent with empirical findings, we observe higher return expectations for momentum stocks, raising questions on analysts believing in a risk–return trade-off.

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KW - Financial analysts

KW - Momentum

KW - Risk factor

KW - Value

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Value and momentum from investors’ perspective: Evidence from professionals’ risk-ratings

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Keywords

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