Asymmetric Momentum Effects Under Uncertainty

David Kelsey, Roman Kozhan () and Wei Pang

Review of Finance, 2010, vol. 15, issue 3, 603-631

Abstract: 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.

Date: 2010
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