Short-term Momentum

The Review of Financial Studies, 2021

68 Pages Posted: 17 Apr 2018 Last revised: 30 Jun 2021

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)

Multiple version iconThere are 2 versions of this paper

Date Written: May 27, 2021

Abstract

We document a striking pattern in U.S. and international stock returns: double sorting on the previous 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 price momentum. It survives transaction costs and is strongest among the largest, most liquid, and most extensively covered stocks. Our results are difficult to reconcile with models imposing strict rationality 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 (May 27, 2021). The Review of Financial Studies, 2021, 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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