TY - JOUR T1 - Uncertainty, Momentum, and Profitability JF - The Journal of Portfolio Management SP - 91 LP - 104 DO - 10.3905/jpm.2019.1.085 VL - 45 IS - 4 AU - Claire Y.C. Liang AU - Zhenyang (David) Tang AU - Xiaowei Xu Y1 - 2019/03/31 UR - https://pm-research.com/content/45/4/91.abstract N2 - In this article, the authors argue that momentum and profitability factors share a common source in uncertainty. Specifically, the authors find that uncertainty subsumes price momentum and operating profitability; it also accounts for the majority of the profits associated with earnings momentum and return on equity, especially in large firms. Furthermore, the profits of the four aforementioned momentum/profitability strategies concentrate in periods of negative market returns, consistent with high-uncertainty stocks’ greater vulnerability to bad market states documented in recent literature. The market-state dependence of momentum/profitability strategies has significant implications for portfolio managers who attempt to profit from these strategies. Understanding the sources of the profits also helps portfolio managers better employ these factors in constructing investment portfolios.TOPICS: Analysis of individual factors/risk premia, performance measurement, portfolio construction ER -