A Trade-based Analysis of Momentum

39 Pages Posted: 11 Jul 2001  

Soeren Hvidkjaer

Copenhagen Business School

Multiple version iconThere are 2 versions of this paper

Date Written: February 2005

Abstract

This paper uses transactions data for all nyse/amex stocks in the period 1983-2002 to study how investors trade in Jegadeesh and Titman (1993) momentum portfolios. Among small trades, there is an extremely sluggish reaction to the past returns. For instance, an initial small-trade buying pressure exists for loser stocks, and it gradually converts into an intense selling pressure over the following year. The results are consistent with initial underreaction followed by delayed reaction among small traders. Moreover, small-trade imbalances during the formation period significantly affect momentum returns, suggesting that underreaction among small traders contribute to the momentum effect. Large traders, by contrast, show no evidence of underreaction, and large-trade imbalances have little impact on subsequent returns. Overall, the results suggest that momentum could partly be driven by the behavior of small traders.

Suggested Citation

Hvidkjaer, Soeren, A Trade-based Analysis of Momentum (February 2005). AFA 2002 Atlanta Meetings. Available at SSRN: https://ssrn.com/abstract=276487 or http://dx.doi.org/10.2139/ssrn.276487

Soeren Hvidkjaer (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

HOME PAGE: http://www.hvidkjaer.net

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