Abstract

http://ssrn.com/abstract=1663266
 
 

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Momentum – Reversal Strategy


Hsin-Yi Yu


National University of Kaohsiung

Li-Wen Chen


National Chung Cheng University

May 25, 2011


Abstract:     
Various theories have been presented to explain momentum and reversals in stock returns. Based on the model of Hong and Stein (1999), this paper creates a hybrid strategy to avoid the losses from the reversal phase. The risk-adjusted returns of the new strategy are significantly higher than those of the traditional momentum strategy. Moreover, the risk-adjusted returns of the new strategy cannot be fully explained by Carhart’s four-factor model. Such a finding is robust in different time periods and size quintiles. Overall, this paper exploits the interaction between heterogeneous investors and generates distinctive applications.

Number of Pages in PDF File: 66

Keywords: Momentum; Reversal; Overreaction; Underreaction; Timing Ability

JEL Classification: G11, G12, G14

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Date posted: August 22, 2010 ; Last revised: May 27, 2011

Suggested Citation

Yu, Hsin-Yi and Chen, Li-Wen, Momentum – Reversal Strategy (May 25, 2011). Available at SSRN: http://ssrn.com/abstract=1663266 or http://dx.doi.org/10.2139/ssrn.1663266

Contact Information

Hsin-Yi Yu (Contact Author)
National University of Kaohsiung ( email )
Kaohsiung, 803
Taiwan
Li-Wen Chen
National Chung Cheng University ( email )
Min-Shiung, Chia-Yi, 621
Taiwan
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