A risk-return explanation of the momentum-reversal “anomaly”

Booth, G. Geoffrey and Fung, Hung-Gay and Leung, Wai Kin (2016) A risk-return explanation of the momentum-reversal “anomaly”. Journal of Empirical Finance, 35 . pp. 68-77. ISSN 0927-5398

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Abstract

This study investigates the nature of the momentum-reversal phenomenon exhibited by U.S. stock returns from 1962 to 2013. We use cumulative future returns of long–short portfolios, which are formed using prior returns as benchmarks, after portfolio formation to analyze the well-documented momentum-reversal pattern. Contrary to many previous studies our results demonstrate that there is no momentum-reversal anomaly. We show that size (market capitalization), which is often considered a proxy for risk, eventually dominates momentum's initial effect, causing stock prices and, hence, returns to move in the opposite direction. We demonstrate that this latter price movement is likely to be related to institutional trading.

Item Type: Article
Keywords: Asset pricing; Stock returns; Momentum; Market capitalization
Schools/Departments: University of Nottingham Ningbo China > Faculty of Business > Nottingham University Business School China
Identification Number: 10.1016/j.jempfin.2015.10.007
Depositing User: LIN, Zhiren
Date Deposited: 03 Nov 2017 11:45
Last Modified: 03 Nov 2017 11:49
URI: http://eprints.nottingham.ac.uk/id/eprint/47708

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