Broad-market return persistence and momentum profits

Ying-Foon Chow, Ming Liu and Xinting Fan

Mathematics and Computers in Simulation (MATCOM), 2008, vol. 78, issue 2, 181-188

Abstract: Momentum profits are shown to be driven by the broad-market persistence of returns between the formation period and the holding period, which is measured as the slope coefficient of the regression of the cross-section returns in the holding period on the cross-section returns in the formation period. Broad-market persistence offers an understanding on momentum profits from a market-wide perspective that goes beyond the stock-specific continuation of extreme winners and losers as proposed in Jegadeesh and Titman [N. Jegadeesh, S. Titman, Returns to buying winners and selling losers: implication for stock market efficiency, Journal of Finance 48 (1993) 65–91] and Grundy and Martin [B.D. Grundy, S.J. Martin, Understanding the nature of risks and the sources of rewards to momentum investing, Review of Financial Studies 14 (2001) 29–78]. The proposed framework provides an alternative explanation to the inability of widely accepted asset pricing models in explaining momentum profits.

Keywords: Return persistence; Momentum profits; Market efficiency (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:78:y:2008:i:2:p:181-188

DOI: 10.1016/j.matcom.2008.01.011

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