Trended Momentum

63 Pages Posted: 27 Mar 2024

See all articles by Charlie X. Cai

Charlie X. Cai

University of Liverpool Management School

Peng L

University of Bath

Kevin Keasey

University of Leeds - Division of Accounting and Finance

Date Written: February 27, 2024

Abstract

Our study demonstrates that a distinct price trend significantly enhances the momentum strategy, yielding an 11.34% annualized return in the highest trend clarity quintile portfolio—more than double that of a traditional momentum strategy. Clear trend momentum mitigates immediate post-formation reversals and postpones medium-term reversals by 15 months compared to less distinct trends. We find this trended momentum effect to be more pronounced in developed markets, which exhibit stronger, clearer price trends during the formation period. Our study highlights the importance of price path analysis and the role of momentum traders in asset pricing models and trading strategies.

Keywords: Momentum, Trend Clearness, Behavioural Finance, Trading Strategies, Pricing Anomalies

JEL Classification: M14, M41, M42, G30

Suggested Citation

Cai, Charlie Xiaowu and L, Peng and Keasey, Kevin, Trended Momentum (February 27, 2024). Available at SSRN: https://ssrn.com/abstract=4740445 or http://dx.doi.org/10.2139/ssrn.4740445

Charlie Xiaowu Cai (Contact Author)

University of Liverpool Management School ( email )

University of Liverpool
Liverpool, L69 7ZA
United Kingdom

Peng L

University of Bath

Kevin Keasey

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom
+44 (0)113 343 2618 (Phone)

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