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Market Dynamics and Momentum Profits

Published online by Cambridge University Press:  15 September 2010

Ebenezer Asem  and
Gloria Y. Tian
Ebenezer Asem
Affiliation:
Faculty of Management, University of Lethbridge, Lethbridge, Alberta, Canada T1K 3M4. ebenezer.asem@uleth.ca
Gloria Y. Tian
Affiliation:
Australian School of Business, University of New South Wales, Sydney, New South Wales, Australia 2052. y.tian@unsw.edu.au
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Abstract

Recent evidence indicates that momentum profits are sensitive to market conditions. We find that the profits are higher when the markets continue in the same state than when they transition to a different state. These findings support Daniel, Hirshleifer, and Subrahmanyam (1998), who suggest that investor overconfidence is higher when the markets continue in the same state (UP or DOWN) than when they reverse, predicting higher momentum profits in the former. In contrast, our evidence following DOWN markets is not consistent with the other competing models for the market-state conditional momentum profits.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 45 , Issue 6 , December 2010 , pp. 1549 - 1562
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2010

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