25 Pages Posted: 26 Oct 2013 Last revised: 7 Dec 2013
Date Written: December 5, 2013
Recent evidence for the U.S. indicates that momentum profits are conditional on market dynamics. This paper documents that the following finding holds for the Japanese market as well: momentum returns are significantly higher when the market stays in the same condition than when it transitions to the other state. This evidence is consistent with the behavioral model of Daniel et al. (1998). Furthermore, market transitions occurred more frequently in Japan compared to the U.S. These results explain why average momentum returns have historically been low in Japan, a fact generally referred to as an empirical failure of momentum. Overall, my findings indicate that different market dynamics, and not different momentum, cause the overall low momentum returns in Japan.
Keywords: Japan, Momentum, Momentum Crashes, Behavioral Finance, Market Dynamics
JEL Classification: G11, G12, G15
Suggested Citation: Suggested Citation
By Andrew Ang