Lecture: Momentum, Information Uncertainty, and Leverage
Professor Doron Avramov of the University of Maryland will presenting at this week's Finance Seminar. All are invited to attend.
Topic: Momentum, Information Uncertainty, and Leverage - an Explanation Based on Recursive Preferences
Abstract: Momentum payoffs concentrate in high information uncertainty and high credit risk firms and are virtually nonexistent otherwise. This paper rationalizes such momentum concentrations in consumption based equilibrium asset pricing. In our paradigm, dividend growth is mean-reverting, expected dividend growth is persistent, an agent has Duffie and Epstein (1992) utility function, and the economy is levered a la Abel (1999). Employing reasonable risk-aversion levels we are able to produce the observational momentum effects. Momentum profitability is large in the interaction between high levered and risky cash flow firms. It rapidly deteriorates and ultimately disappears as leverage or cash flow risk diminishes.
More information about Professor Doron Avramov.
