An Analysis on the Predictability of CAPM Beta for Momentum Returns

This paper demonstrates that the forecasted CAPM beta of momentum portfolios explains a large portion of the return, ranging from 40% to 60% for stock level momentum, and 30% to 50% for industry level momentum. Beta forecasts are from a realized beta estimator using daily returns over the prior year. Periods such as 1969 to 1989 have been found in earlier studies to contain abnormal profits from momentum trading,however, we show that these were spuriously generated by measurement error in systematic risk. These results cast further doubt on the ability of standard momentum trading strategies to generate abnormal profits