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Residual momentum in Japan

Rosita P. Chang, Kuan-Cheng Ko, Shinji Nakano and S. Ghon Rhee

Journal of Empirical Finance, 2018, vol. 45, issue C, 283-299

Abstract: We demonstrate that the residual momentum strategy, which is constructed to hedge out the risk exposure to the Fama–French (1993) factors, is profitable in Japan for short-term holding periods ranging from three to 12 months. Residual momentum profits over long-term holding periods ranging from two to five years do not reverse, unlike traditional price momentum strategies observed in the U.S. market. The findings in both short- and long-term holding periods are attributed to investor underreaction. A comprehensive index of limited attention supports investor underreaction as an underlying cause of momentum in Japan.

Keywords: Residual momentum strategies; Total return momentum strategies; Japanese market; Investor underreaction; Information discreteness; Limited attention (search for similar items in EconPapers)
Date: 2018
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Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

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Handle: RePEc:eee:empfin:v:45:y:2018:i:c:p:283-299