Momentum life cycle, revisited

Tsung-Yu Chen, Pin-Huang Chou, Chia-Hsun Hsieh and S. Ghon Rhee

Journal of Banking & Finance, 2021, vol. 127, issue C

Abstract: The momentum life cycle (MLC) hypothesis proposed by Lee and Swaminathan (2000) is spurious because it is largely driven by multiplying two widely documented effects on momentum and turnover. After controlling for these two effects, what remains is a negative return pattern for late-stage momentum, mostly driven by the higher returns of low-turnover losers. Although the higher returns of low-turnover losers disappear either under a risk adjustment or with the inclusion of NASDAQ stocks, they remain significant during periods of optimism, thus supporting the underreaction theory of momentum proposed by Hong and Stein (2007), whereby turnover proxies for the divergence of opinion among investors.

Keywords: Trading volume; Price momentum; Momentum life cycle (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:127:y:2021:i:c:s0378426621000777

DOI: 10.1016/j.jbankfin.2021.106119

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