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Residual momentum in Japan

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  • Chang, Rosita P.
  • Ko, Kuan-Cheng
  • Nakano, Shinji
  • Ghon Rhee, S.

Abstract

We demonstrate that the residual momentum strategy, which is constructed to hedge out the risk exposure to the Fama–French (1993) factors, is profitable in Japan for short-term holding periods ranging from three to 12 months. Residual momentum profits over long-term holding periods ranging from two to five years do not reverse, unlike traditional price momentum strategies observed in the U.S. market. The findings in both short- and long-term holding periods are attributed to investor underreaction. A comprehensive index of limited attention supports investor underreaction as an underlying cause of momentum in Japan.

Suggested Citation

  • Chang, Rosita P. & Ko, Kuan-Cheng & Nakano, Shinji & Ghon Rhee, S., 2018. "Residual momentum in Japan," Journal of Empirical Finance, Elsevier, vol. 45(C), pages 283-299.
    • Handle: RePEc:eee:empfin:v:45:y:2018:i:c:p:283-299
    DOI: 10.1016/j.jempfin.2017.11.005
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