Market States, Expectations, Sentiment and Momentum: How Naive are Investors?

Posted: 20 Jan 2016

See all articles by Emilios C. Galariotis

Emilios C. Galariotis

School of Production Engineering and Management

Phil Holmes

University of Leeds - Faculty of Business

Vasileios Kallinterakis

University of Liverpool - Management School (ULMS)

Sheldon Ma

Independent

Date Written: March 01, 2014

Abstract

Following Cooper et al. 2004 we test whether market states are relevant for predicting UK momentum profits. However, rather than simply categorizing up/down markets based on actual prices as Cooper et al. 2004, we suggest investors may view expectations and/or sentiment as important. Contrary to the findings for the US, we find that momentum returns are not related to Cooper et al. 2004-defined market states. Similar findings hold for an expectations-based split. In contrast, for the whole sample period, construction and retail sentiment indicators explain differences in momentum profits. However, robustness tests suggest their explanatory power is driven by the post-subprime crisis period.

Keywords: momentum, futures, expectations, sentiment, market states

JEL Classification: G1, G10, G14

Suggested Citation

Galariotis, Emilios C. and Holmes, Phil and Kallinterakis, Vasileios and Ma, Sheldon, Market States, Expectations, Sentiment and Momentum: How Naive are Investors? (March 01, 2014). International Review of Financial Analysis, Vol. 32, 2014, Available at SSRN: https://ssrn.com/abstract=2718879

Emilios C. Galariotis

School of Production Engineering and Management ( email )

Technical Uiversity of Crete, Fin. Eng. Laboratory
University Campus
Chania, 73100
Greece
00302821037239 (Phone)

HOME PAGE: http://https://www.fel.tuc.gr

Phil Holmes (Contact Author)

University of Leeds - Faculty of Business ( email )

Leeds LS2 9JT
United Kingdom

Vasileios Kallinterakis

University of Liverpool - Management School (ULMS) ( email )

Chatham Street
Liverpool, L69 7ZH
United Kingdom

Sheldon Ma

Independent ( email )

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