Empirical Determinants of Momentum: A Perspective From International Data

Abstract

We use out-of-sample international data to consider U.S.-based empirical proxies for momentum explanations. We find that the proxy for the hypothesis that investor underreaction to information arriving in small bits rather than in large chunks results in momentum receives reliable support internationally. The market/book ratio as a proxy for valuation uncertainty, and potentially for investor overconfidence as well, receives secondary support, but we find no support for real options proxies. We confirm out-of-sample that momentum is stronger in up-markets and less-volatile markets; these market states represent high investor confidence in the original studies

Keywords: momentum; information diffusion, market efficiency

JEL Classification: G12,G14