Persistency of the Momentum Effect: The Role of Consistent Winners and Losers
SSRN Electronic Journal
2016
- 2Citations
- 7,371Usage
- 19Captures
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Example: if you select the 1-year option for an article published in 2019 and a metric category shows 90%, that means that the article or review is performing better than 90% of the other articles/reviews published in that journal in 2019. If you select the 3-year option for the same article published in 2019 and the metric category shows 90%, that means that the article or review is performing better than 90% of the other articles/reviews published in that journal in 2019, 2018 and 2017.
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Article Description
Momentum profits, resulting from buying winners and selling losers, are robust in the stock market worldwide. However, more than 40% of winners and losers immediately fall out of their respective groups in the month following formation, suggesting that intermediate-term momentum persistency is not universal among all stocks with extreme past performance. The return reversals that these nonpersistent winners and losers exhibit in the month following formation are strong, 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 performance persistency. Further analysis indicates that the persistency is stronger for stocks with greater information asymmetry and more extensively heterogeneous investor beliefs, consistent with the underreaction hypothesis for price momentum.
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