DP15857 Short-term Momentum
|Author(s):||Mamdouh Medhat, Maik Schmeling|
|Publication Date:||February 2021|
|Keyword(s):||bounded rationality, Momentum, reversal, trading volume|
|Programme Areas:||Financial Economics, International Macroeconomics and Finance|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=15857|
We document a striking pattern in U.S. and international stock returns: Double sorting on last month's return and share turnover reveals significant short-term reversal among low-turnover stocks whereas high-turnover stocks exhibit short-term momentum. Short-term momentum is as profitable and as persistent as conventional price momentum. It also survives transaction costs and is strongest among the largest, most liquid, and most extensively covered stocks. Our results are difficult to reconcile with models imposing strict rationality but are suggestive of an explanation based on some traders underappreciating the information in prices.