We study time variation in the profitabilities of medium-term momentum and long-term reversals trading strategies over the business cycle. We find reliable evidence that turning points in the business cycle are critically important in determining momentum and reversals profits. Specifically, momentum profits at business cycle peaks are higher than at business cycle troughs. The opposite pattern is found for reversals profits. Business cycle peaks show lower reversals profits than at troughs. The results indicate that momentum profits are not simply procyclical, but instead exhibit an intriguing and complex non-linear relation with macroeconomic conditions. We also find that the loser stocks are the primary determinant of time variation in momentum and reversals profitabilities across business cycles. Finally, our results remain robust after controlling for market state, cross-sectional return dispersion, and investor sentiment. Taken together, our findings pose challenges to existing theories of the momentum and reversals effects.

中文翻译：

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动量、逆转和商业周期转折点

我们研究了商业周期中中期动量和长期反转交易策略的盈利能力的时间变化。我们发现可靠的证据表明，商业周期的转折点对于确定动量和反转利润至关重要。具体而言，商业周期高峰时的动量利润高于商业周期低谷时的利润。反转利润发现相反的模式。商业周期高峰显示的逆转利润低于低谷。结果表明，动量利润不仅仅是顺周期性的，而是与宏观经济条件呈现出一种有趣而复杂的非线性关系。我们还发现，亏损股票是跨商业周期动量和逆转盈利能力的时间变化的主要决定因素。最后，在控制了市场状态、横截面收益分散和投资者情绪后，我们的结果仍然稳健。总之，我们的研究结果对现有的动量和反转效应理论提出了挑战。