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Momentum and reversals: Are they really separate phenomena?

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  • Chen, Tsung-Yu
  • Chou, Pin-Huang
  • Yang, Nien-Tzu

Abstract

The literature has long debated the co-existence of intermediate-term momentum and long-term return reversals. Recent studies propose several theories to isolate momentum from reversals. This paper provides comprehensive analyses to examine whether intermediate-term momentum and long-term return reversals are really separate phenomena. We show that although these theories all capture a significant fraction of stock returns, the standard Jegadeesh–Titman momentum strategy still generates significant profits in the intermediate term, which are followed by long-term reversals after controlling for these alternative effects. Thus, the co-existence of intermediate-term momentum and long-term reversals remains a distinct phenomenon that is independent of recent theories.

Suggested Citation

  • Chen, Tsung-Yu & Chou, Pin-Huang & Yang, Nien-Tzu, 2020. "Momentum and reversals: Are they really separate phenomena?," Finance Research Letters, Elsevier, vol. 32(C).
    • Handle: RePEc:eee:finlet:v:32:y:2020:i:c:s154461231830775x
    DOI: 10.1016/j.frl.2019.02.002
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    References listed on IDEAS

    as
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    JEL classification:

    • 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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