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Momentum – Reversal Strategy

Hsin-Yi Yu

National University of Kaohsiung

Li-Wen Chen

National Chung Cheng University

May 25, 2011

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
Li-Wen Chen
National Chung Cheng University ( email )
Min-Shiung, Chia-Yi, 621
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References:  51
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