Implications from Biased Probability Judgments for International Disparities in Momentum Returns

Kai Duttle and Keigo Inukai

Journal of Behavioral Finance, 2017, vol. 18, issue 2, 143-151

Abstract: Momentum is a consistent phenomenon in financial data from the majority of markets around the globe. One prominent exception is the Japanese market, where returns from a momentum-investment strategy are nonexistent. The authors investigated international differences in the representativeness heuristic, which is one potential driver of momentum. After observing sequences of a random walk, subjects give probability estimates for the direction of the respective next change. The experiment was conducted in Japan and in Germany. For a subgroup of participants with lower cognitive abilities our results are perfectly in line with international momentum evidence.

Date: 2017
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DOI: 10.1080/15427560.2017.1308937

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