Who Are the (Counter-) Momentum Traders? An Examination of Duration-Driven Trades

We examine the duration-driven trades of duration-sensitive strategic investors, i.e., pensions and life insurers. We use longevity shocks as an identification strategy. Longevity shocks affect these investors' liability durations and induce them to adjust their asset durations. When the longevity shock is low (high), they buy more short- (long-) duration stocks and sell more long- (short-) duration stocks. As prior winners (losers) have shorter (longer) durations, they behave like momentum (counter-momentum) traders when the longevity shock is low (high). We further verify this using fund flows and state-level longevity risks. The results suggest that duration risk contributes to momentum returns