Market States and Momentum

Gutierrez , Roberto C.; Cooper, Michael J.; Hameed, Allaudeen

doi:10.2139/ssrn.299927

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Market States and Momentum

38 Pages Posted: 12 Feb 2002

See all articles by Roberto C. Gutierrez

Michael J. Cooper

University of Utah - David Eccles School of Business

Allaudeen Hameed

National University of Singapore (NUS) - Department of Finance

There are 2 versions of this paper

Date Written: 2003

Abstract

We test overreaction theories of short-run momentum and long-run reversal in the cross section of stock returns. Momentum profits depend on the state of the market, as predicted. From 1929 to 1995, the mean monthly momentum profit following positive market returns is 0.93 percent, whereas the mean profit following negative market returns is negative 0.37 percent. The up-market momentum reverses in the long-run. Our results are robust to the conditioning information in macroeconomic factors. Moreover, we find that macroeconomic factors are unable to explain momentum profits after simple methodological adjustments to take account of microstructure concerns.

Note: Previously titled "Market States and the Profits to Momentum and Contrarian Strategies"

Keywords: Momentum, Reversals, Behavioral Theories

JEL Classification: G14, G12

Suggested Citation: Suggested Citation

Gutierrez, Roberto C. and Cooper, Michael J. and Hameed, Allaudeen, Market States and Momentum (2003). Available at SSRN: https://ssrn.com/abstract=299927 or http://dx.doi.org/10.2139/ssrn.299927