Momentum and Reversal: Does What Goes Up Always Come Down?
Jennifer S. Conrad
University of North Carolina Kenan-Flagler Business School
M. Deniz Yavuz
Purdue University - Krannert School of Management
June 19, 2015
Stocks in a momentum portfolio, which contribute to momentum profits, do not experience reversal in the long run. Conversely, stocks that do not contribute to momentum profits exhibit subsequent reversals. Merging these separate securities into a single portfolio causes momentum and reversal patterns to appear linked. Stocks with momentum can be separated from those that exhibit reversal using stock characteristics. A portfolio that isolates momentum stocks displays large and persistent risk adjusted returns, which do not vary with behavioral proxies. Our results provide some direction for potential explanations of momentum patterns in returns.
Number of Pages in PDF File: 49
Keywords: Momentum, reversal, return predictability, behavioral finance, expected returns, stock chracteristics
JEL Classification: G10, G11, G12, G14, D03
Date posted: February 26, 2012 ; Last revised: June 20, 2015