70 Pages Posted: 17 Apr 2018 Last revised: 6 Nov 2020
Date Written: November 6, 2020
We document a striking pattern in U.S.and international stock returns: Double sorting on last month’s return and share turnover reveals significant short-term reversal among low-turnover stocks whereas high-turnover stocks exhibit short-term momentum. Short-term momentum is as profitable and as persistent as conventional momentum, but is only weakly correlated with conventional price- and earnings momentum strategies. It also survives transaction costs and is strongest among the largest, most liquid, and most extensively covered stocks. Our results are difficult to reconcile with purely rational models but are suggestive of an explanation based on some traders underappreciating the information conveyed by prices.
Keywords: Momentum, Reversal, Trading Volume, Bounded rationality
JEL Classification: G12, G14
Suggested Citation: Suggested Citation