Concept links and return momentum

Qianqian Du, Dawei Liang, Zilin Chen and Jun Tu

Journal of Banking & Finance, 2022, vol. 134, issue C

Abstract: Unlike traditional asset categories (e.g., industry classifications) that are generally defined clearly, some groups of stocks are tied to certain loosely defined “concepts” (e.g., e-commerce). When investors find it difficult to analyze ambiguous concept-oriented information, information diffuses slowly, creating “concept momentum”. Based on unique concept data in the Chinese stock market, this study constructs a concept-momentum strategy that involves buying stocks from past winning concepts and selling stocks from past losing concepts, which can generate pronounced abnormal returns. Neither risk factors, firm-level momentum, nor industry-level momentum can explain concept momentum. Furthermore, we find that both the underreaction and cross-stock lead-lag effect channels can cause slow information diffusion and drive concept momentum. Moreover, the concept momentum effect is stronger for relatively ambiguous concepts, for concepts that attract less investor attention, and following high-sentiment periods.

Keywords: Concept stocks; Momentum effects; Asset classifications; Category learning (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:134:y:2022:i:c:s0378426621002806

DOI: 10.1016/j.jbankfin.2021.106329

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