Momentum and Credit Rating






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    • Doron Avramov is at the Robert H. Smith School of Business, University of Maryland; Tarun Chordia is at the Goizueta Business School, Emory University; Gergana Jostova is at the School of Business, George Washington University; and Alexander Philipov is at the School of Management, George Mason University. The authors thank Yakov Amihud, Michael Cooper, Koresh Galil, Narasimhan Jegadeesh, Sheridan Titman, Ľuboš Pástor, seminar participants at American University, Bank of Canada, Emory University, University of Maryland, McGill University, University of Southern California, the 10th Annual Finance and Accounting Conference at Tel Aviv University, Yale University, the Chicago Quantitative Alliance, the Washington Area Finance Association conference, and especially an anonymous referee and an associate editor for helpful comments. All errors are our own.


This paper establishes a robust link between momentum and credit rating. Momentum profitability is large and significant among low-grade firms, but it is nonexistent among high-grade firms. The momentum payoffs documented in the literature are generated by low-grade firms that account for less than 4% of the overall market capitalization of rated firms. The momentum payoff differential across credit rating groups is unexplained by firm size, firm age, analyst forecast dispersion, leverage, return volatility, and cash flow volatility.