Abstract

http://ssrn.com/abstract=1787378
 
 

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Industry Information and the 52-Week High Effect


Xin Hong


University of Kentucky

Bradford D. Jordan


University of Kentucky - Gatton College of Business and Economics

Mark H. Liu


University of Kentucky - Gatton College of Business and Economics

October 15, 2011


Abstract:     
We find that the 52-week high effect (George and Hwang, 2004) cannot be explained by risk factors. Instead, it is more consistent with investor underreaction caused by anchoring bias: the presumably more sophisticated institutional investors suffer less from this bias and buy (sell) stocks close to (far from) their 52-week highs. Further, the effect is mainly driven by investor underreaction to industry instead of firm-specific information. The extent of underreaction is more for positive than for negative industry information. A strategy that buys stocks in industries in which stock prices are close to 52-week highs and shorts stocks in industries in which stock prices are far from 52-week highs generates a monthly return of 0.60% from 1963 to 2009, roughly 50% higher than the profit from the individual 52-week high strategy in the same period. The 52-week high strategy works best among stocks with high R-squares and high industry betas (i.e., stocks whose values are more affected by industry factors and less affected by firm-specific information). Furthermore, our industry 52-week high effect is more pronounced among firms with less informative prices, exactly the type of firm on which investors are more likely to suffer from the anchoring bias. Our results hold even after controlling for both individual and industry return momentum effects.

Number of Pages in PDF File: 51

Keywords: 52-week high effect, momentum, anchoring bias

JEL Classification: G11, G12

working papers series


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Date posted: March 23, 2011 ; Last revised: March 13, 2012

Suggested Citation

Hong, Xin and Jordan, Bradford D. and Liu, Mark H., Industry Information and the 52-Week High Effect (October 15, 2011). Available at SSRN: http://ssrn.com/abstract=1787378 or http://dx.doi.org/10.2139/ssrn.1787378

Contact Information

Xin Hong
University of Kentucky ( email )
Lexington, KY 40506
United States
Bradford D. Jordan
University of Kentucky - Gatton College of Business and Economics ( email )
Lexington, KY 40506
United States
859-257-4887 (Phone)
859-257-9688 (Fax)
Mark H. Liu (Contact Author)
University of Kentucky - Gatton College of Business and Economics ( email )
Lexington, KY 40506
United States
859-257-9842 (Phone)
859-257-9688 (Fax)
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