Persistency of the momentum effect

Hong Yi Chen, Pin Huang Chou, Chia Hsun Hsieh

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

The intermediate-term momentum persistency is not universal among all stocks. More than 40% of winners and losers immediately fall out of their respective groups in the month following formation, resulting in a monthly loss of more than 17% for a momentum strategy constructed on such stocks. By contrast, persistent winners and losers, defined as those staying in their groups for at least one more month, exhibit much stronger momentum persistency. Further analysis indicates that, consistent with the delayed reaction hypothesis for price momentum, the persistency is stronger for stocks with greater information asymmetry and more extensively heterogeneous investor beliefs.

Original languageEnglish
Pages (from-to)856-892
Number of pages37
JournalEuropean Financial Management
Volume24
Issue number5
DOIs
StatePublished - Nov 2018

Keywords

  • delayed reaction hypothesis
  • duration
  • heterogeneous beliefs
  • information asymmetry
  • persistent momentum strategy

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