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

Narasimhan Jegadeesh, Jiang Luo, Avanidhar Subrahmanyam and Sheridan Titman

The Review of Financial Studies, 2025, vol. 38, issue 12, 3673-3728

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.

Keywords: G12; G14; G41 (search for similar items in EconPapers)
Date: 2025
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