Individualism and Momentum Around the World

71 Pages Posted: 23 Jun 2008 Last revised: 25 Feb 2009

See all articles by Andy C.W. Chui

Andy C.W. Chui

Hong Kong Polytechnic University

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

K.C. John Wei

Hong Kong Polytechnic University

Date Written: February 23, 2009

Abstract

This paper examines the extent to which cultural differences influence the returns of momentum strategies. We measure cultural differences using an index of individualism developed by Hofstede (2001), which we argue is related to overconfidence and self-attribution bias. Our cross-country evidence indicates that individualism is positively associated with trading volume and volatility, and is strongly related to the magnitude of momentum profits. The evidence also indicates that momentum profits are positively related to the dispersion of analyst forecasts, transaction costs, and the familiarity of a market to foreign investors, and negatively related to firm size and stock volatility. However, the addition of these and other variables does not dampen the relation between individualism and momentum profits. These results are robust to whether or not East Asian countries, which exhibit less momentum, are included in our sample. Finally, consistent with the prediction of behavioral models, momentum profits reverse one year after portfolio formation in most countries, and the magnitude of the reversals tends to be higher in countries with higher individualism.

Keywords: International momentum, Individualism, Overconfidence, Volatility, Trading volume

JEL Classification: G12, G15, K22, Z10

Suggested Citation

Chui, Andy Chun Wai and Titman, Sheridan and Wei, Kuo-Chiang (John), Individualism and Momentum Around the World (February 23, 2009). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1150076

Andy Chun Wai Chui

Hong Kong Polytechnic University ( email )

M808, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong
(852)2766 7105 (Phone)
(852)2356 9550 (Fax)

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Kuo-Chiang (John) Wei (Contact Author)

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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