Momentum and Reversal: Does What Goes Up Always Come Down?

49 Pages Posted: 26 Feb 2012 Last revised: 20 Jun 2015

Jennifer S. Conrad

University of North Carolina Kenan-Flagler Business School

M. Deniz Yavuz

Purdue University - Krannert School of Management

Date Written: June 19, 2015

Abstract

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.

Keywords: Momentum, reversal, return predictability, behavioral finance, expected returns, stock chracteristics

JEL Classification: G10, G11, G12, G14, D03

Suggested Citation

Conrad, Jennifer S. and Yavuz, M. Deniz, Momentum and Reversal: Does What Goes Up Always Come Down? (June 19, 2015). Available at SSRN: https://ssrn.com/abstract=2011148 or http://dx.doi.org/10.2139/ssrn.2011148

Jennifer S. Conrad

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

M. Deniz Yavuz (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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