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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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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 93 (2006)
Issue (Month): 3 (December)
Pages: 360-366

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Handle: RePEc:eee:ecolet:v:93:y:2006:i:3:p:360-366
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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Find related papers by JEL classification:
  • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
  • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
  • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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  2. Bollerslev, Tim & Gibson, Michael & Zhou, Hao, 2011. "Dynamic estimation of volatility risk premia and investor risk aversion from option-implied and realized volatilities," Journal of Econometrics, Elsevier, vol. 160(1), pages 235-245, January.
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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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