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Asymmetric Momentum Effects Under Uncertainty

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  • David Kelsey
  • Roman Kozhan
  • Wei Pang

Abstract

This paper studies asymmetric profitability of the momentum trading strategy. When investors face Knightian uncertainty, they react differently to past winners and losers, which creates asymmetric patterns in price continuations. This asymmetry increases with the level of market and idiosyncratic uncertainty relating to the fundamental value of stocks. We provide a model explaining this phenomenon and empirical evidence supporting the hypothesis. Our results also imply that momentum is more likely to continue for downward trends in a highly uncertain market. Copyright 2010, Oxford University Press.

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Bibliographic Info

Article provided by European Finance Association in its journal Review of Finance.

Volume (Year): 15 (2010)
Issue (Month): 3 ()
Pages: 603-631

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Handle: RePEc:oup:revfin:v:15:y:2010:i:3:p:603-631

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  1. K. Rouwenhorst, 1996. "International Momentum Strategies," Yale School of Management Working Papers ysm36, Yale School of Management, revised 01 Feb 2008.
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Cited by:
  1. Flavia Barsotti, 2012. "Optimal Capital Structure with Endogenous Default and Volatility Risk," Working Papers - Mathematical Economics 2012-02, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
  2. : Constantinos Antoniou & : Richard D.F. Harris & : Ruogu Zhang, 2013. "Ambiguity Aversion and Stock Market Participation: Evidence from Fund Flows," Working Papers wpn13-01, Warwick Business School, Finance Group.

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