Profitability of Momentum Strategies: An Evaluation of Alternative Explanations

Narasimhan Jegadeesh and Sheridan Titman

No 7159, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper evaluates various explanations for the profitability of momentum strategies documented in Jegadeesh and Titman (1993). The evidence indicates that momentum profits have continued in the 1990's suggesting that the original results were not a product of data snooping bias. The paper also examines the predictions of recent behavioral models that propose that momentum profits are due to delayed overreactions which are eventually reversed. Our evidence provides support for the behavioral models, but this support should be tempered with caution. Although we find no evidence of significant return reversals in the 2 to 3 years following the following formation date, there are significant return reversals 4 to 5 years after the formation date. Our analysis of post-hiding period returns sharply rejects a claim in the literature that the observed momentum profits can be explained completely by the cross-sectional dispersion in expected returns.

JEL-codes: G12 (search for similar items in EconPapers)
Date: 1999-06
Note: AP CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Published as Jegadeesh, Narasimhan and Sheridan Titman. "Profitability Of Momentum Strategies: An Evaluation Of Alternative Explanations," Journal of Finance, 2001, v56(2,Apr), 699-720.

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