The Trend Premium Around the World: Evidence from the Stock Market
52 Pages Posted: 26 May 2020
Date Written: April 28, 2020
This paper studies the predictive power of the trend strategy in the international stock market. Using data from 49 markets, we find that a trend signal exploiting the short-, intermediate-, and long-term price information can predict stock returns cross-sectionally in the international market. The significance of the trend strategy is associated with market-level characteristics such as macroeconomic conditions, culture, and the information environment. The trend premium is more pronounced in markets with a more advanced macroeconomic status, a higher level of information uncertainty and individualism, and better accessibility to foreign investors. Nevertheless, the trend strategy only outperforms the momentum strategy in a relatively short horizon.
Keywords: Trend premium; Momentum; Information uncertainty; International
JEL Classification: G12; G14
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