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Asymmetric Momentum Effects Under Uncertainty

  • David Kelsey
  • Roman Kozhan
  • Wei Pang

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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File URL: http://hdl.handle.net/10.1093/rof/rfq021
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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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