Momentum Returns, Uncertainty, and Energy Prices : Evidence from Major Equity Markets

This paper examines factors that affect the profitability of momentum returns for the US, the UK, Japan, and Germany, for the period 1998-2018. More specifically, the paper examines the impact of factors that have been largely neglected in the relevant literature, such as energy price changes and economic policy uncertainty, along with macroeconomic and risk factors on the profitability of professional momentum portfolios that are often used as benchmarks in the institutional investor industry. The results indicate that, since the financial crises in the US and the EU, energy prices and economic-policy uncertainty have become important return determinants, along with market-related uncertainty that seems to have a stable impact overtime, especially for the US and UK portfolios. For example, between 2007 and 2018, oil price variance accounts for 20.80% of US momentum return variance while natural gas price variance explains a further 10.57% of momentum return variance in the US