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A Prospect-Theoretical Interpretation of Momentum Returns

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  • Menkhoff, Lukas
  • Schmeling, Maik

Abstract

The puzzling evidence of seemingly high momentum returns is related to an understanding of risk as a simple covariance. If we consider, however, risk in higher-order statistical moments, momentum returns appear less advantageous. Thus, a prospect-theoretical assessment of US stock momentum returns provides a possible direction for explaining this puzzle.

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File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-335.pdf
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Bibliographic Info

Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-335.

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Length: 15 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:han:dpaper:dp-335

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Keywords: momentum trading; market efficiency; prospect theory;

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References

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  1. Haigh, Michael S. & List, John A., 2002. "Do Professional Traders Exhibit Myopic Loss Aversion? An Experimental Analysis," Working Papers 28554, University of Maryland, Department of Agricultural and Resource Economics.
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Cited by:
  1. Gregory-Allen, Russell & Lu, Helen & Stork, Philip, 2012. "Asymmetric extreme tails and prospective utility of momentum returns," Economics Letters, Elsevier, vol. 117(1), pages 295-297.

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