Revisiting momentum profits in emerging markets

This study investigates the cross-sectional and time-series properties of momentum returns in 19 emerging market countries. Consistent with previous studies, we find that overall momentum profits are lower in emerging markets. One explanation for this underperformance is the negative relationship between momentum returns and market factor in down market states, which lowers overall momentum returns in emerging market countries. In this regard, we find that risk management of momentum reduces exposure to the market factor, thereby boosting returns, Sharpe ratios, and asset pricing model alphas. Finally, momentum returns are lower in more risk averse emerging market countries, and momentum crashes usually occur when risk aversion is higher.