The Distribution of Cross Sectional Momentum Returns When Underlying Asset Returns Are Student’s t Distributed

In Kwon and Satchell (2018), a theoretical framework was introduced to investigate thedistributional properties of the cross-sectional momentum returns under the assumption that thevector of asset returns over the ranking and holding periods were multivariate normal. In thispaper, the framework is extended to derive the corresponding results when the asset returns aremultivariate Student&rsquo
s t. In particular, we derive the probability density function and the moments ofthe cross-sectional momentum returns and examine in detail the special case of two underlying assetsto demonstrate that many of the salient features reported in the empirical literature are consistentwith the theoretical implications.