The 52-Week High Strategy and Information Uncertainty

Financial Markets and Portfolio Management, Vol. 25, No. 4, pp. 345-378, 2011

Posted: 7 Dec 2011

See all articles by Hans-Peter Burghof

Hans-Peter Burghof

University of Hohenheim

Felix Prothmann

University of Hohenheim

Multiple version iconThere are 2 versions of this paper

Date Written: July 14, 2011

Abstract

This paper examines the driver of the 52-week high strategy, which is long in stocks close to their 52-week high price and short in stocks with a price far below their one-year high, and tests the hypothesis that this strategy’s profitability can be explained by anchoring - a behavioral bias. To test the null, we examine whether the 52-week high criterion has more predictive power in cases of larger information uncertainty. This hypothesis is based on the psychological insight that behavioral biases increase in uncertainty. For six proxies of ambiguity, we document a positive relationship to returns of 52-week high winner stocks and a negative relationship to returns of 52-week high loser stocks. The opposite effect of information uncertainty on winner and loser stocks implies that the 52-week high profits are increasing in uncertainty measures. Moreover, the study documents that the six variables have a similar impact on momentum profits. Hence, we cannot reject the hypothesis that anchoring explains the profits of the 52-week high strategy and that it is the driver of the momentum anomaly.

Keywords: momentum, behavioral finance

JEL Classification: G12, G14

Suggested Citation

Burghof, Hans-Peter and Prothmann, Felix, The 52-Week High Strategy and Information Uncertainty (July 14, 2011). Financial Markets and Portfolio Management, Vol. 25, No. 4, pp. 345-378, 2011 . Available at SSRN: https://ssrn.com/abstract=1969328

Hans-Peter Burghof

University of Hohenheim ( email )

Schloss Hohenheim
510F
Stuttgart, 70599
Germany
+49 711 459 22900 (Phone)
+49 711 459 23448 (Fax)

Felix Prothmann (Contact Author)

University of Hohenheim ( email )

Fruwirthstr. 48
Stuttgart, 70599
Germany

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