Frog in the Pan: Continuous Information and Momentum

61 Pages Posted: 22 Dec 2013  

Zhi Da

University of Notre Dame - Mendoza College of Business

Umit G. Gurun

University of Texas at Dallas

Mitch Warachka

University of San Diego; Claremont McKenna College - Robert Day School of Economics and Finance

Multiple version iconThere are 3 versions of this paper

Date Written: December 21, 2013

Abstract

We test a frog-in-the-pan (FIP) hypothesis that predicts investors are inattentive to information arriving continuously in small amounts. Intuitively, we hypothesize that a series of frequent gradual changes attracts less attention than infrequent dramatic changes. Consistent with the FIP hypothesis, we find that continuous information induces strong persistent return continuation that does not reverse in the long run. Momentum decreases monotonically from 5.94% for stocks with continuous information during their formation period to -2.07% for stocks with discrete information but similar cumulative formation-period returns. Higher media coverage coincides with discrete information and mitigates the stronger momentum following continuous information.

Keywords: Momentum, Information Discreteness, Idiosyncratic Volatility

JEL Classification: G11, G12, G14

Suggested Citation

Da, Zhi and Gurun, Umit G. and Warachka, Mitch, Frog in the Pan: Continuous Information and Momentum (December 21, 2013). Available at SSRN: https://ssrn.com/abstract=2370931 or http://dx.doi.org/10.2139/ssrn.2370931

Zhi Da

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556-5646
United States

Umit G. Gurun (Contact Author)

University of Texas at Dallas

2601 North Floyd Road
Richardson, TX 75083
United States

Mitch Warachka

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States

University of San Diego ( email )

5998 Alcala Park
University of San Diego
San Diego, CA 92110-2492
United States

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