Who Trades on Momentum?

56 Pages Posted: 21 Jun 2016

See all articles by Markus Baltzer

Markus Baltzer

Deutsche Bundesbank

Stephan Jank

Deutsche Bundesbank; University of Cologne - Centre for Financial Research (CFR)

Esad Smajlbegovic

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Multiple version iconThere are 2 versions of this paper

Date Written: 2014

Abstract

Using a unique data set that contains the complete ownership structure of the German stock market, we study the momentum and contrarian trading of different investor groups. Foreign investors and financial institutions, and especially mutual funds, are momentum traders, whereas private households are contrarians. Contrarian trading by private households declines with investors' financial sophistication though, as proxied by financial wealth and equity home bias. Observing momentum trading over time, we document substantial increase in sales of loser stocks by foreign and institutional investors during the market downturn of the Great Recession and just before the crash of the momentum strategy in 2009. Finally, our evidence indicates that excessive sales of loser stocks pushed prices below their fundamental value, predicting the relative overperformance of past losers and the reversal of the momentum strategy.

Keywords: momentum anomaly, momentum crash, investor behavior, institutional investors, individual investors

JEL Classification: G10, G14, G23

Suggested Citation

Baltzer, Markus and Jank, Stephan and Smajlbegovic, Esad, Who Trades on Momentum? (2014). Bundesbank Discussion Paper No. 42/2014. Available at SSRN: https://ssrn.com/abstract=2797023

Markus Baltzer (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Stephan Jank

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

University of Cologne - Centre for Financial Research (CFR) ( email )

Albertus-Magnus Platz
Cologne, 50923
Germany

Esad Smajlbegovic

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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