Momentum Life Cycle around the World and Beyond

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

Frank Weikai Li

Singapore Management University - Lee Kong Chian School of Business

K.C. John Wei

Hong Kong University of Science & Technology (HKUST) - Department of Finance

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

Singapore Management University - Lee Kong Chian School of Business ( email )

Lee Kong Chian School of Business, Singapore Manag
50 Stamford Rd, #4046
Singapore, 178899
Singapore

Kuo-Chiang (John) Wei (Contact Author)

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

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

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