Momentum Life Cycle around the World and Beyond

72 Pages Posted: 16 Feb 2015 Last revised: 25 Sep 2016

Frank Weikai Li

Hong Kong University of Science and Technology - Department of Finance

K.C. John Wei

School of Accounting and Finance, Hong Kong Polytechnic University

Date Written: August 8, 2016

Abstract

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

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

Frank Weikai Li

Hong Kong University of Science and Technology - Department of Finance ( email )

Clear Water Bay
Kowloon
Hong Kong

Kuo-Chiang (John) Wei (Contact Author)

School of Accounting and Finance, Hong Kong Polytechnic University ( email )

School of Accounting and Finance
Hong Kong Polytechnic University
Hung Hom, Kowloon
Hong Kong
852 2766 4953 (Phone)
852 2330 9845 (Fax)

Paper statistics

Downloads
348
Rank
68,151
Abstract Views
1,249