Non-parametric momentum based on ranks and signs

Tsung Yu Chen, Pin Huang Chou, Kuan Cheng Ko, S. Ghon Rhee

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

This study proposes alternative momentum strategies built on the rank and sign of daily returns. Rank and sign momentum strategies are robust to the presence of extreme price movements. They generate significant profits for short-term holding periods and exhibit no long-term return reversals. More importantly, they subsume traditional price momentum, but not vice versa. In addition, rank and sign momentum strategies experience much weaker momentum crashes. Further evidence indicates that rank and sign momentum profitability is less vulnerable to salient past returns while traditional price momentum winners (losers) tend to be overvalued (undervalued) when they face a higher degree of salience.

Original languageEnglish
Pages (from-to)94-109
Number of pages16
JournalJournal of Empirical Finance
Volume60
DOIs
StatePublished - Jan 2021

Keywords

  • Price momentum
  • Rank
  • Salience
  • Sign

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