Momentum, Reversal, and the Trading Behaviors of Institutions

52 Pages Posted: 31 Dec 2004

Date Written: July 12, 2006


We identify two types of momenta in stock returns - one due to total returns and one due to firm-specific residual returns. Despite similar performances over the first year, these momentum portfolios perform dramatically differently beyond year one. Total-return momentum reverses strongly; residual momentum continues for years. This complexity in return momentum challenges the current theories of momentum. We propose that both momenta are consequences of agency issues in the money management industry and provide empirical support for this economic rationale of momentum in returns. Incentives induce institutions to chase total returns and to underreact to firm-specific news.

Keywords: Momentum, underreaction, overreaction, institutions, agency costs

JEL Classification: G12, G20, G14

Suggested Citation

Gutierrez, Roberto C. and Pirinsky, Christo Angelov, Momentum, Reversal, and the Trading Behaviors of Institutions (July 12, 2006). Available at SSRN: or

Roberto C. Gutierrez (Contact Author)

University of Oregon ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States
541-346-3254 (Phone)
541-346-3341 (Fax)

Christo Angelov Pirinsky

University of Central Florida ( email )

College of Business Administration/Finance
PO Box 161400
Orlando, FL FL 32816
United States
407-823-5962 (Phone)

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