72 Pages Posted: 16 Feb 2015 Last revised: 25 Sep 2016
Date Written: August 8, 2016
The momentum life cycle (MLC) hypothesis first proposed by Lee and Swaminathan (2000) applies also to global markets. Early-stage strategies significantly outperform the late-stage and conventional strategies in most countries. Individualism culture is positively associated with late-stage but unrelated to early-stage momentum profitability, suggesting that early- and late-stage momentums are driven by different underlying mechanisms. Consistent with Stein’s (2009) model that arbitrageurs could amplify mispricing, we find that late-stage momentum profits are more pronounced in countries with lower limits to arbitrage. Furthermore, we find that the MLC also applies to exchange traded funds in the United States.
Keywords: Momentum life cycle; International; ETFs; Individualism; Limits to arbitrage; Momentum profits
JEL Classification: G11; G12; G14
Suggested Citation: Suggested Citation
Li, Frank Weikai and Wei, K.C. John, Momentum Life Cycle around the World and Beyond (August 8, 2016). Asian Finance Association (AsianFA) 2015 Conference Paper. Available at SSRN: https://ssrn.com/abstract=2565305 or http://dx.doi.org/10.2139/ssrn.2565305