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Persistency of the momentum effect

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  • Hong‐Yi Chen
  • Pin‐Huang Chou
  • Chia‐Hsun Hsieh

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.

Suggested Citation

  • Hong‐Yi Chen & Pin‐Huang Chou & Chia‐Hsun Hsieh, 2018. "Persistency of the momentum effect," European Financial Management, European Financial Management Association, vol. 24(5), pages 856-892, November.
    • Handle: RePEc:bla:eufman:v:24:y:2018:i:5:p:856-892
    DOI: 10.1111/eufm.12140
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