On the relationship between concentration of prospect theory/mental accounting investors, cointegration, and momentum

Ajay Bhootra and Jungshik Hur

Journal of Banking & Finance, 2012, vol. 36, issue 5, 1266-1275

Abstract: We examine the role of cointegration between stock prices and their estimated fundamental values in return momentum. We find that the positive relationship between capital gains overhang and future stock returns in Grinblatt and Han (2005) is significantly stronger among the “non-cointegrated” group of stocks as compared with the “cointegrated” group of stocks. Further, for the cointegrated stocks, the slower the speed of adjustment to the cointegrating equilibrium, the greater (smaller) is the future return of stocks with unrealized capital gains (losses). These findings are robust to various firm characteristics including firm size, book-to-market ratio, past returns, idiosyncratic volatility, dispersion in analysts’ earnings forecasts, turnover, individual investor ownership, and industry returns.

Keywords: Prospect theory; Mental accounting; Cointegration; Momentum (search for similar items in EconPapers)
JEL-codes: G1 G12 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:5:p:1266-1275

DOI: 10.1016/j.jbankfin.2011.11.021

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