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Left-Tail Momentum: Limited Attention of Individual Investors and Expected Equity Returns

81 Pages Posted: 16 Nov 2017 Last revised: 20 Nov 2017

Yigit Atilgan

Sabanci University

Turan G. Bali

Georgetown University - Robert Emmett McDonough School of Business

K. Ozgur Demirtas

Sabanci University

A. Doruk Gunaydin

Sabanci University

Date Written: November 14, 2017

Abstract

This paper documents a significantly negative cross-sectional relation between left-tail risk and future returns on individual stocks trading in the U.S. and international countries. We find that the left-tail risk anomaly is stronger for stocks that are more likely to be held by retail investors and that receive less investor attention, underscoring the importance of investor clientele and inattention mechanisms. We also provide an alternative explanation showing that individual investors underestimate the persistence in left-tail risk and overprice stocks with large recent losses. Thus, low returns in the left-tail of the distribution persist into the future causing left-tail return momentum.

Keywords: left-tail risk, momentum, equity returns, retail investors, investor inattention

JEL Classification: G10, G11, G12

Suggested Citation

Atilgan, Yigit and Bali, Turan G. and Demirtas, K. Ozgur and Gunaydin, A. Doruk, Left-Tail Momentum: Limited Attention of Individual Investors and Expected Equity Returns (November 14, 2017). Available at SSRN: https://ssrn.com/abstract=3070777

Yigit Atilgan

Sabanci University ( email )

Orta Mahalle Üniversite Caddesi 27
Istanbul, Orhanli, 34956 Tuzla 34956
Turkey

Turan Bali (Contact Author)

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
(202) 687-5388 (Phone)
(202) 687-4031 (Fax)

HOME PAGE: http://msbonline.georgetown.edu/faculty-research/msf-faculty/turan-bali

K. Ozgur Demirtas

Sabanci University ( email )

Graduate School of Management
Orhanli Tuzla
İstanbul, 34956
Turkey
(+90) 216-483-9985 (Phone)
(+90) 216-483-9699 (Fax)

A. Gunaydin

Sabanci University ( email )

School of Management
Orhanli Tuzla
İstanbul, 34956
Turkey

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