The Formation Process of Winners and Losers in Momentum Investing
67 Pages Posted: 28 May 2015
Date Written: May 26, 2015
Previous studies have focused on which stocks are winners or losers but have paid little attention to the formation process of past returns. This paper develops a model showing that past returns and the formation process of past returns have a joint effect on future expected returns. The empirical evidence shows that the zero-investment portfolio, including stocks with specific patterns of historical prices, improves monthly momentum profit by 59%. Overall, the process of how one stock becomes a winner or loser can further distinguish the best and worst stocks in a group of winners or losers.
Keywords: Momentum; Historical Price; Price Movement
JEL Classification: G12, G14
Suggested Citation: Suggested Citation