Decomposing momentum: The forgotten component

Pascal Büsing, Hannes Mohrschladt and Susanne Siedhoff

Journal of Banking & Finance, 2024, vol. 168, issue C

Abstract: We split up the standard momentum return over months t−12 to t−2 at the highest stock price within this formation period. Of the overall momentum profits in month t, 84% can be attributed to the return prior to this peak price although research has exclusively focused on the post-peak return so far. The return predictability of the forgotten component is consistent with investor underreaction as underlying mechanism. Contrary to standard momentum strategies, the corresponding long-short returns are positively skewed, avoid momentum crashes, show no market state dependence, and yield consistent return premiums in both the US and international stock markets.

Keywords: Momentum; 52-week high; Momentum crashes; Underreaction; Cross-section of stock returns (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:168:y:2024:i:c:s0378426624002061

DOI: 10.1016/j.jbankfin.2024.107292

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