The Changing Beta of Value and Momentum Stocks

Abstract

Alpha and risk factor volatility have recently reached extremes. This aticle discusses the risk and return relationships of value and momentum, which the authors believe have shifted. They find that market risk, or beta, correlations for both factors have reversed and resulted in changes and magnifications of return relationships. Decomposing these interactions allows us to better understand the underlying risks of portfolios constructed using value or momentum signals in their alpha or risk models.

TOPICS: Risk management, portfolio construction, financial crises and financial market history