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Do Momentum and Reversals Coexist?

40 Pages Posted: 20 Sep 2010 Last revised: 9 Apr 2012

Jason Zhanshun Wei

University of Toronto - Rotman School of Management

Date Written: February 11, 2011

Abstract

The answer to the title question is "Yes." Examining stocks traded on the NYSE, AMEX and NASDAQ for the period of 1964 to 2009, this study discovers that, while momentum prevails among small stocks, momentum and reversals coexist among large stocks for a holding period of up to six months. The momentum/reversal divide is along the volatility dimension: Large-cap/low-volatility stocks exhibit reversals while large-cap/high-volatility stocks experience momentum. This new discovery cannot be fully rationalized with either risk-based or behavioral-based explanations.

Keywords: momentum, reversals, return predictability, firm size, volatility, underreaction, overreaction

JEL Classification: G10, G12, G14

Suggested Citation

Wei, Jason Zhanshun, Do Momentum and Reversals Coexist? (February 11, 2011). Available at SSRN: https://ssrn.com/abstract=1679464 or http://dx.doi.org/10.2139/ssrn.1679464

Jason Zhanshun Wei (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-978-3698 (Phone)
416-971-3048 (Fax)

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