Short-term Momentum

70 Pages Posted: 17 Apr 2018 Last revised: 6 Nov 2020

See all articles by Mamdouh Medhat

Mamdouh Medhat

Dimensional Fund Advisors

Maik Schmeling

Goethe University Frankfurt - Department of Finance; Centre for Economic Policy Research (CEPR)

Date Written: November 6, 2020

Abstract

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

Medhat, Mamdouh and Schmeling, Maik, Short-term Momentum (November 6, 2020). Available at SSRN: https://ssrn.com/abstract=3150525 or http://dx.doi.org/10.2139/ssrn.3150525

Mamdouh Medhat

Dimensional Fund Advisors ( email )

6300 Bee Cave Road, Building One
Austin, TX 78746
United States

HOME PAGE: http://https://sites.google.com/site/mamdouhmedhatresearch/home

Maik Schmeling (Contact Author)

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60323
Germany

HOME PAGE: http://sites.google.com/site/maikschmeling/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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