Cross-stock momentum builds on the asymmetry in lead-lag linkages and the difference between long-run and short-run contemporaneous co-movements. Data-driven cross-stock linkages generate a monthly alpha of 1.62% ( t -stat=10.03). The asymmetry distinguishes cross-stock momentum from factor momentum, and industry momentum is not subsumed by factor momentum. Factor momentum profit is mostly due to the high cross-stock links. The data-driven linkages vary faster over time than those in previous studies because short-run co-movements incorporate persistent linkages.

This paper studies the cross-sectional risk–return trade-off in the stock market. A fundamental principle in finance is the positive relation between risk and expected return. However, recent empirical evidence suggests the opposite. Using several intuitive risk measures, we show that the negative risk–return relation is much more pronounced among firms in which investors face prior losses, but the risk–return relation is positive among firms in which investors face prior gains. We consider a number of possible explanations for this new empirical finding and conclude that reference-dependent preference is the most promising explanation.