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Reversal and Momentum Patterns in Weekly Stock Returns: European Evidence

53 Pages Posted: 21 Jan 2015 Last revised: 18 Feb 2017

Hannah Lea Hühn

Assenagon Asset Management

Hendrik Scholz

Friedrich-Alexander-Universität (FAU) Erlangen-Nürnberg

Date Written: February 17, 2017

Abstract

We analyze short-term reversal and medium-term momentum patterns in weekly stock returns in Europe. Focusing on raw and on stock-specific returns, our empirical results show for both return specifications i) a negative relation between weekly past returns and future returns in the short run and ii) a positive relation in the medium run. However, returns of reversal and momentum strategies based on stock-specific returns are less volatile. In further analyses, we find short-term reversal and medium-term momentum patterns to be connected to stock characteristics. Looking at the potential causes of these effects, our results do not corroborate that short-term reversal in weekly stock returns is due to an over- or underreaction to firm-specific news nor mainly driven by illiquidity. On the other hand, medium-term momentum in weekly stock returns can be connected to behavioral biases. Finally, our concluding tests confirm that our findings are robust among industries, in sub-periods, for the January effect and in varying market states.

Keywords: Short-term reversal, medium-term momentum, conventional strategy, stock-specific strategy, stock characteristics

JEL Classification: G11, G12, G14

Suggested Citation

Hühn, Hannah Lea and Scholz, Hendrik, Reversal and Momentum Patterns in Weekly Stock Returns: European Evidence (February 17, 2017). Available at SSRN: https://ssrn.com/abstract=2552580

Hannah Lea Hühn (Contact Author)

Assenagon Asset Management ( email )

Prannerstraße 8
München, Bavaria 80333
Germany
+49 89 519966 423 (Phone)
+49 89 519966 55423 (Fax)

HOME PAGE: http://www.assenagon.com

Hendrik Scholz

Friedrich-Alexander-Universität (FAU) Erlangen-Nürnberg ( email )

Finance and Banking
Lange Gasse 20
Nürnberg, Bavaria 90403
Germany
0049-911-5302649 (Phone)
0049-911-5302466 (Fax)

HOME PAGE: http://www.finanzierung.wiso.uni-erlangen.de

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