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Short-Term Reversals and Longer-Term Momentum around the World: Theory and Evidence

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Listed:
  • Narasimhan Jegadeesh
  • Jiang Luo
  • Avanidhar Subrahmanyam
  • Sheridan Titman

Abstract

Stock returns exhibit reversals at short horizons but slowly transition to momentum over longer horizons. To help understand this pattern, we develop a multiperiod model with short- and long-horizon noise traders, and active investors who underreact to information they do not themselves produce. The model accords with the transition from reversals to momentum and yields the following novel predictions: (a) attenuated reversals after earnings announcements, (b) a negative relation between monthly reversal and longer-term momentum profits across economies and time, and (c) larger reversals when there is more noise trading. Empirical analysis using U.S. and international data supports these predictions.

Suggested Citation

  • Narasimhan Jegadeesh & Jiang Luo & Avanidhar Subrahmanyam & Sheridan Titman, 2025. "Short-Term Reversals and Longer-Term Momentum around the World: Theory and Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 38(12), pages 3673-3728.
    • Handle: RePEc:oup:rfinst:v:38:y:2025:i:12:p:3673-3728.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaf057
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    JEL classification:

    • 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
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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