A Study on the Causal Relationships between Cross-Sectional Momentum Strategies and Macroeconomic Variables Pre- and Post-2008 Financial Crisis.

Abstract

This master's thesis examines cross-sectional momentum strategies in the context of changes in macroeconomic variables preceding and following the 2008 financial crisis. Testing the hypothesis that there may be an altered causal relationship between the variables M2 money supply, risk-free rate, CPI, gold, and WTI on cross-sectional momentum strategies after 2008. We find evidence that the cross-sectional momentum strategy generated abnormal returns prior to 2008 but lost its efficacy after 2008. We provide significant empirical evidence documenting a shift in the influence of the economic variables on the momentum returns using simple OLS regressions and a multivariate VAR model.