Paper Title
Market State and Momentum Portfolio

Abstract
The Momentum Puzzle has been a constant challenge to classic finance theory. Stocks that have performed better in the past tend to perform better in the future. Prior researches have failed to provide valid risk-based explanations because winner portfolios do not exhibit higher risk characteristics. Without a convincing risk explanation, the persistence of momentum profit is a violation of Efficient Market Hypothesis. Today, the momentum puzzle remains one of the very few major anomalies that cannot be explained by Fama-French factor models. We find prior empirical efforts to measure momentum profits and its sources are contaminated by the state of the marker during both formation and holding period. By looking into different market states, classified by both traditional and non-traditional bull and bear market definition, we find the key to at least partially solve the momentum mystery. We find momentum stocks are risker when formed in bull market, and momentum profit is much higher in continuation of market than reverses of market condition, lending empirical support to risk-based explanation. This manuscript is for conference proceeding only, not a formal publication. Keywords - Momentum, Market States, Efficient Market Hypothesis