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The 52-week high, momentum, and investor sentiment

Author

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  • Hao, Ying
  • Chou, Robin K.
  • Ko, Kuan-Cheng
  • Yang, Nien-Tzu

Abstract

This paper examines the link between the profitability of the 52-week high momentum strategy and investor sentiment. We hypothesize that investors' investment decisions are subject to behavioral biases when the level of investor sentiment is high, resulting in higher profits for the 52-week high momentum following high-sentiment periods. Our empirical results confirm this prediction. In addition, we find that the significant profit of the 52-week high momentum following high-sentiment periods persists up to five years. Further investigations show that the strong persistence of the 52-week high winners (losers) is concentrated in stocks with higher (lower) earnings surprises, especially during periods following high sentiment. Overall, our results provide supportive evidence for the anchoring biases in explaining the 52-week high momentum, especially when the role of investor sentiment is taken into account.

Suggested Citation

  • Hao, Ying & Chou, Robin K. & Ko, Kuan-Cheng & Yang, Nien-Tzu, 2018. "The 52-week high, momentum, and investor sentiment," International Review of Financial Analysis, Elsevier, vol. 57(C), pages 167-183.
    • Handle: RePEc:eee:finana:v:57:y:2018:i:c:p:167-183
    DOI: 10.1016/j.irfa.2018.01.014
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    9. Wang, Zhuo & Wang, Ziyue & Wu, Ke, 2023. "The role of anchoring on investors’ gambling preference: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
    10. Zhou, Xuemei & Liu, Qiang & Guo, Shuxin, 2021. "Do overnight returns explain firm-specific investor sentiment in China?," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 451-477.
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    More about this item

    Keywords

    52-Week high; Momentum profits; Investor sentiment; Earnings announcement;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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