The Formation Process of Winners and Losers in Momentum Investing

67 Pages Posted: 28 May 2015

See all articles by Li-Wen Chen

Li-Wen Chen

National Chung Cheng University

Wen-Kai Wang

National University of Kaohsiung - Department of Finance

Hsin-Yi Yu

University of Edinburgh - Organisation Studies; National University of Kaohsiung; University of Edinburgh - Accounting and Finance

Date Written: May 26, 2015

Abstract

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

Chen, Li-Wen and Wang, Wen-Kai and Yu, Hsin-Yi, The Formation Process of Winners and Losers in Momentum Investing (May 26, 2015). Available at SSRN: https://ssrn.com/abstract=2610571 or http://dx.doi.org/10.2139/ssrn.2610571

Li-Wen Chen

National Chung Cheng University ( email )

Min-Shiung, Chia-Yi, 621
Taiwan

Wen-Kai Wang

National University of Kaohsiung - Department of Finance ( email )

700 Kaohsiung University Rd.
Nanzih District
Kaohsiung 803
Taiwan

Hsin-Yi Yu (Contact Author)

University of Edinburgh - Organisation Studies ( email )

50 George Square
William Robertson Building
Edinburgh EH8 9JY
UNITED KINGDOM

National University of Kaohsiung ( email )

Kaohsiung, 803
Taiwan

University of Edinburgh - Accounting and Finance ( email )

William Robertson Building
Edinburgh EH8 9JY
United Kingdom

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