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Market states, expectations, sentiment and momentum: How naive are investors?

Author

Listed:
  • Emilios C. C Galariotis

    (Audencia Recherche - Audencia Business School)

  • Phil Holmes

    (University of Leeds)

  • Vasileios Kallinterakis

    (University of Liverpool)

  • Xiaodong S. Ma

    (WBS - Warwick Business School - University of Warwick [Coventry])

Abstract

Following Cooper et al. (CGH) 2004 we test whether market states are relevant for predicting UK momentum profits. However, rather than simply categorising up/down markets based on actual prices as CGH, we suggest that investors may view expectations and/or sentiment as important. Contrary to the findings for the US, we find that momentum returns are not related to CGH-defined market states. Similar findings hold for an expectations-based split. In contrast, for the whole sample period, construction and retail sentiment indicators explain differences in momentum profits. However, robustness tests suggest that their explanatory power is driven by the post-subprime crisis period.

Suggested Citation

  • Emilios C. C Galariotis & Phil Holmes & Vasileios Kallinterakis & Xiaodong S. Ma, 2014. "Market states, expectations, sentiment and momentum: How naive are investors?," Post-Print hal-00943345, HAL.
    • Handle: RePEc:hal:journl:hal-00943345
    DOI: 10.1016/j.irfa.2013.12.004
    Note: View the original document on HAL open archive server: https://audencia.hal.science/hal-00943345
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    3. Florin Cornel Dumiter & Florin Turcaș & Ștefania Amalia Nicoară & Cristian Bențe & Marius Boiță, 2023. "The Impact of Sentiment Indices on the Stock Exchange—The Connections between Quantitative Sentiment Indicators, Technical Analysis, and Stock Market," Mathematics, MDPI, vol. 11(14), pages 1-26, July.
    4. Duxbury, Darren & Yao, Songyao, 2017. "Are investors consistent in their trading strategies? An examination of individual investor-level data," International Review of Financial Analysis, Elsevier, vol. 52(C), pages 77-87.
    5. Sina Badreddine & Ephraim Clark, 2021. "The asymmetric effects of industry specific volatility in momentum returns," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6444-6458, October.

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