The 52-week high and momentum in the Taiwan stock market: Anchoring or recency biases?

Ying Hao, Hsiang-Hui Chu, Keng-Yu Ho and Kuan-Cheng Ko

International Review of Economics & Finance, 2016, vol. 43, issue C, 121-138

Abstract: The 52-week high price contains dual information in predicting future stock returns. On the one hand, investors are subject to the anchoring bias by viewing the 52-week high price as a reference point; on the other hand, the effect of the 52-week high price is stronger if it happened more recently, which is known as the recency bias. This paper examines the role of the 52-week high in explaining momentum profits in the Taiwan stock market by comparing two strategies that are related to anchoring and recency biases, respectively. We show that the profitability of the 52-week high strategy is attenuated by the considerably negative returns in January months, while the profitability of the recency strategy is not sensitive to the January seasonality. However, the recency strategy still displays predictable time-series patterns when conditioning variables are taken into consideration. It is profitable only during periods before 2000, expansionary periods, and up market states. Further investigations show that when all strategies are considered simultaneously, the 52-week high strategy plays a determinant role in generating momentum returns during the sample period from January 1982 to December 2012, while the recency strategy dominates the momentum profits in the 1970s. Overall, our results reveal mixed evidence for both strategies, suggesting the coexistence of the anchoring bias and the recency bias in the Taiwan stock market.

Keywords: 52-week high; Momentum profits; Anchoring bias; Recency bias; Taiwan stock market (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:43:y:2016:i:c:p:121-138

DOI: 10.1016/j.iref.2015.10.035

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