Reexamining momentum profits: Underreaction or overreaction to firm-specific information?

Jungshik Hur () and Vivek Singh ()

Review of Quantitative Finance and Accounting, 2016, vol. 46, issue 2, 289 pages

Abstract: We design a new measure and find that the predictability of past returns on future returns increases as stocks respond with delay to firm-specific information. Our results suggest that momentum is caused by both investors’ underreaction and overreaction to information. However, underreaction to information seems to be the primary cause, particularly during the more recent period. Our findings are robust for recent explanations of momentum profits and alternative methods for computing our measure. We also find that stocks respond with delay to firm-specific information, partly due to certain firm characteristics, and partly because they escape investor attention due to their low visibility. Our paper extends and refines Jegadeesh and Titman’s (J Financ 56(2):699–720, 2001 ) finding that momentum profits are consistent with behavioral models’ predictions regarding investors’ overreaction. Copyright Springer Science+Business Media New York 2016

Keywords: Momentum; Cointegration; Underreaction; Overreaction; G12; G14; G20 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (11)

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DOI: 10.1007/s11156-014-0469-x

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