Long-Term Momentum Hypothesis: Contrarian and Momentum Strategies

54 Pages Posted: 6 Sep 2002  

Keun-Soo Kim

Korea Securities Research Institute (KSRI)

Date Written: July 2002

Abstract

This paper suggests a new model that attempts to explain long-term reversal and short-term momentum in stock prices by the interaction of momentum traders and passive rational investors. The new model is distinct from other overreaction models in that price momentum becomes stronger as a trend in stock price changes continues. The simulation results for the model confirm long-term reversal and short-term momentum and propose three new predictions that distinguish the model from other hypotheses. These predictions are synthetically described as the long-term momentum hypothesis. The primary empirical results provided by this study are consistent with the long-term momentum hypothesis.

Keywords: behavioral finance, long-term reversal, momentum

JEL Classification: G12, G14

Suggested Citation

Kim, Keun-Soo, Long-Term Momentum Hypothesis: Contrarian and Momentum Strategies (July 2002). Available at SSRN: https://ssrn.com/abstract=320020 or http://dx.doi.org/10.2139/ssrn.320020

Keun-Soo Kim (Contact Author)

Korea Securities Research Institute (KSRI) ( email )

33 Youido-dong Youngdungpo-gu
150-977 Seoul
Korea

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