The momentum puzzle, i.e., stocks that have performed better in the past tend to perform better in the future, has been a constant challenge to classic finance theory. Prior research has failed to provide valid risk-based explanations because winner portfolios do not exhibit higher risk characteristics. Without a convincing risk explanation, the persistence of momentum profit is a violation of the efficient market hypothesis. Today, the momentum puzzle remains one of the very few major anomalies that cannot be explained by Fama-French factor models. I find prior empirical efforts to measure momentum profits and its sources are contaminated by the state of the market during both formation and holding periods. By looking into different market states, classified by both traditional and non-traditional bull and bear market definition, I find the key to at least partially solve the momentum mystery. Momentum stocks are riskier when formed in bull market, and momentum profit is much higher in continuation of market than reverses of market condition, lending empirical support to a risk-based explanation. My definition of market states is essentially based on the risk premium of major risk factors. When market risk is considered a risk factor, if realized market risk premium is positive, it is a bull market; when size is considered a proxy for risk factor, if SMB (small minus big risk premium) is positive, it is a bull market; when valuation (book-to-market) ratio is a proxy for risk factor, if HML (High-minus-Low risk premium) is positive, it is a bull market. This paper also explores simulations using models based on the positive relationship between risk and return. The simulation result confirms that at least part of the momentum profit can be explained by risk.

It has been twelve years since the last time the yield curve was inverted. Since 2017, the yield curve has been continuing to flatten and has almost entered an inverted state. The last five recessions have been preceded by the inversion of the yield curve. I examine momentum trading strategy’s ability to outperform during an inverted yield curve state. The yield curve can enter the momentum portfolio strategy through the portfolio’s formation and holding period. I document the increased performance of the momentum strategy’s total portfolio return in an inverted state. These results have implications on the timing a momentum trading strategy might be implemented.

Existing papers have shown that innovation and consumer satisfaction influence the firm performance and stock returns; however, the related papers usually neglect the impacts of market status. This paper extends prior papers by considering the impacts of market status when exploring the relationship among innovation, consumer satisfaction, and firm performance. Empirical results show that in the bull markets innovation and consumer satisfaction do not significantly affect stock returns while in the bear markets stock returns are positively associated with the level of innovation and consumer satisfaction. These results suggest that managers should take market status into consideration when making marketing decisions.

In this study, we examine how advertising and customer satisfaction affect a firm¡¦s systematic risk (£]-risk) under both the highly volatile and tranquil market. This study extends prior studies that primarily considered the effects of marketing initiatives on performance metrics, focusing on systematic risk under the highly volatile and tranquil market. We examine how advertising and customer satisfaction affect a firm¡¦s £]-risk under the two distinct markets. We develop a two-stage model procedure. First, each individual firm¡¦s £]-risk in the both markets is estimated by Fama-French-Carhart-Ang 5-factor model which includes implied volatility index (VIX) as an aggregate volatility factor, along with the estimators of maximum likelihood (MLE) under the Markov switching model. Second, to examine the impact of advertising and customer satisfaction on £]-risk, we estimate empirical models for the dataset of the two distinct markets by the generalized method of moments (GMM) and the quantile regression. The results significantly support our hypotheses that higher advertising and higher customer satisfaction lower a firm¡¦s £]-risk under the overall, highly volatile and tranquil markets from the standpoint of long run. Furthermore, we find an additional discovering that from the view of short term, adverting is negatively significant associated with £]-risk under the highly volatile market, while customer satisfaction is not. Customer satisfaction, however, is negatively significant associated with £]-risk under the tranquil market, while advertising is not.

本研究主要探討投資人的積極程度以及市場的樂觀程度是否會影響動能策略之獲利能力。本研究利用1973至2013年間美國個股進行實證研究，結果驗證了動能策略於樣本期間能有顯著的獲利。進一步的實證結果顯示，規模較小且交易量成長率較低的公司存在極短期(一個月內)反轉的現象。此外，在市場樂觀期間(較多的首次公開發行的公司家數、較高的消費者信心指數或較低的恐慌指數)動能策略之獲利能力較佳且顯著。因此，我們建議投資人能在市場樂觀期間對規模較小的公司進行動能策略，將可得到較高的預期超額報酬。 / The main purpose of this study is to investigate whether the activism of investors and the sentiment of the market can affect the profitability of the momentum strategy. Using individual firms during 1973 to 2013 as the sample, this study reexamines and confirms the profitability of the momentum strategy. The further empirical result shows that firms with smaller size and lower growth rate of trading volume exhibit a very short-term (within one month) reversal effect. In addition, during the optimistic period (years which have more firms conducting initial public offerings, higher consumer confidence index, or lower VIX), the profitability of the momentum strategy is significantly higher than that during the passive period. Therefore, a suggested trading strategy applying momentum strategy to small firms during the high sentiment period may yield a superior performance.