Empirical Determinants of Momentum: A Perspective From International Data
65 Pages Posted: 20 Jan 2022 Last revised: 15 Mar 2023
Date Written: January 19, 2022
Abstract
We use out-of-sample international data to consider U.S.-based empirical proxies for momentum explanations. We find that the proxy for the hypothesis that investor underreaction to information arriving in small bits rather than in large chunks results in momentum receives reliable support internationally. The market/book ratio as a proxy for valuation uncertainty, and potentially for investor overconfidence as well, receives secondary support, but we find no support for real options proxies. We confirm out-of-sample that momentum is stronger in up-markets and less-volatile markets; these market states represent high investor confidence in the original studies
Keywords: momentum; information diffusion, market efficiency
JEL Classification: G12,G14
Suggested Citation: Suggested Citation