Asymmetric Momentum Effects Under Uncertainty

39 Pages Posted: 20 May 2010

See all articles by David Kelsey

David Kelsey

University of Exeter Business School - Department of Economics; Nottingham University Business School

Roman Kozhan

University of Warwick - Warwick Business School

Wei Pang

Kingston University

Date Written: April 7, 2010

Abstract

This paper studies asymmetric profitability of the momentum trading strategy. When investors face Knightian uncertainty, they react differently to past winners and losers which creates asymmetric patterns in price continuations. This asymmetry increases with the level of market and idiosyncratic uncertainty relating to the fundamental value of stocks. We provide a model explaining this phenomenon and empirical evidence supporting the hypothesis. Our results also imply that momentum is more likely to continue for downward trends in a highly uncertain market.

Keywords: Momentum, Knightian Uncertainty, Asymmetric Response

JEL Classification: G11, G12, D81

Suggested Citation

Kelsey, David and Kozhan, Roman and Pang, Wei, Asymmetric Momentum Effects Under Uncertainty (April 7, 2010). WBS Finance Group Research Paper No. 142, Available at SSRN: https://ssrn.com/abstract=1612317 or http://dx.doi.org/10.2139/ssrn.1612317

David Kelsey

University of Exeter Business School - Department of Economics ( email )

Business School North
Nottingham, Nottingham NG7 1AN
United Kingdom
01158467405 (Phone)

HOME PAGE: http://people.exeter.ac.uk/dk210/

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

HOME PAGE: http://https://www.nottingham.ac.uk/business/people/lizdk2.html

Roman Kozhan (Contact Author)

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

Wei Pang

Kingston University ( email )

Penrhyn Road
Kingston-upon-Thames
Surrey, KT1 2EE
United Kingdom

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