A risk-return explanation of the momentum-reversal “anomaly”
This study investigates the nature of the momentum-reversal phenomenon exhibited by U.S. stock returns from 1962 to 2013. We use cumulative future returns of long–short portfolios, which are formed using prior returns as benchmarks, after portfolio formation to analyze the well-documented momentum-r...
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| Format: | Article |
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Elsevier
2016
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| Online Access: | https://eprints.nottingham.ac.uk/47708/ |
| _version_ | 1848797610332127232 |
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| author | Booth, G. Geoffrey Fung, Hung-Gay Leung, Wai Kin |
| author_facet | Booth, G. Geoffrey Fung, Hung-Gay Leung, Wai Kin |
| author_sort | Booth, G. Geoffrey |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | This study investigates the nature of the momentum-reversal phenomenon exhibited by U.S. stock returns from 1962 to 2013. We use cumulative future returns of long–short portfolios, which are formed using prior returns as benchmarks, after portfolio formation to analyze the well-documented momentum-reversal pattern. Contrary to many previous studies our results demonstrate that there is no momentum-reversal anomaly. We show that size (market capitalization), which is often considered a proxy for risk, eventually dominates momentum's initial effect, causing stock prices and, hence, returns to move in the opposite direction. We demonstrate that this latter price movement is likely to be related to institutional trading. |
| first_indexed | 2025-11-14T20:06:37Z |
| format | Article |
| id | nottingham-47708 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| last_indexed | 2025-11-14T20:06:37Z |
| publishDate | 2016 |
| publisher | Elsevier |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-477082020-04-29T15:19:50Z https://eprints.nottingham.ac.uk/47708/ A risk-return explanation of the momentum-reversal “anomaly” Booth, G. Geoffrey Fung, Hung-Gay Leung, Wai Kin This study investigates the nature of the momentum-reversal phenomenon exhibited by U.S. stock returns from 1962 to 2013. We use cumulative future returns of long–short portfolios, which are formed using prior returns as benchmarks, after portfolio formation to analyze the well-documented momentum-reversal pattern. Contrary to many previous studies our results demonstrate that there is no momentum-reversal anomaly. We show that size (market capitalization), which is often considered a proxy for risk, eventually dominates momentum's initial effect, causing stock prices and, hence, returns to move in the opposite direction. We demonstrate that this latter price movement is likely to be related to institutional trading. Elsevier 2016-01-02 Article PeerReviewed Booth, G. Geoffrey, Fung, Hung-Gay and Leung, Wai Kin (2016) A risk-return explanation of the momentum-reversal “anomaly”. Journal of Empirical Finance, 35 . pp. 68-77. ISSN 0927-5398 Asset pricing; Stock returns; Momentum; Market capitalization http://www.sciencedirect.com/science/article/pii/S092753981500105X?via%3Dihub doi:10.1016/j.jempfin.2015.10.007 doi:10.1016/j.jempfin.2015.10.007 |
| spellingShingle | Asset pricing; Stock returns; Momentum; Market capitalization Booth, G. Geoffrey Fung, Hung-Gay Leung, Wai Kin A risk-return explanation of the momentum-reversal “anomaly” |
| title | A risk-return explanation of the momentum-reversal “anomaly” |
| title_full | A risk-return explanation of the momentum-reversal “anomaly” |
| title_fullStr | A risk-return explanation of the momentum-reversal “anomaly” |
| title_full_unstemmed | A risk-return explanation of the momentum-reversal “anomaly” |
| title_short | A risk-return explanation of the momentum-reversal “anomaly” |
| title_sort | risk-return explanation of the momentum-reversal “anomaly” |
| topic | Asset pricing; Stock returns; Momentum; Market capitalization |
| url | https://eprints.nottingham.ac.uk/47708/ https://eprints.nottingham.ac.uk/47708/ https://eprints.nottingham.ac.uk/47708/ |