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Asymmetric dynamics of stock price continuation

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  • Huang, Alex YiHou
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    Abstract

    This paper finds that the dynamics of stock price continuation are asymmetrical, in terms of both business cycles and past performances. During times of recession, stock returns are explained differently for past losers and winners; the level of credit quality dominates the return dynamics for extreme losers, while levels of information-based trading activity and information ambiguity contribute to winners’ medium-term returns. Such asymmetry is proposed as the source of insignificant profits achieved using conventional momentum strategies. On the other hand, in times of expansion, conventional asset pricing factors are found to affect stock returns with a dependence on the level of credit quality; this suggests that more profitable momentum strategies remain to be discovered.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 36 (2012)
    Issue (Month): 6 ()
    Pages: 1839-1855

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:6:p:1839-1855

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Momentum; Credit default swaps; Probability of informed trading;

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    Cited by:
    1. Nyberg, Henri, 2013. "Predicting bear and bull stock markets with dynamic binary time series models," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3351-3363.
    2. Huang, Alex YiHou & Cheng, Chiao-Ming, 2013. "Information risk and credit contagion," Finance Research Letters, Elsevier, vol. 10(3), pages 116-123.

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