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Frog in the Pan and the market-state effect on momentum

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  • Galvani, Valentina

Abstract

Momentum profitability depends on the market state, with protracted market gains (UP state) heralding momentum profits and prolonged market declines (DOWN state) ushering momentum losses. Previous literature documents a monotonic negative relationship between information discreteness and momentum, consistent with the Frog in the Pan (FIP) hypothesis. This study shows that the relationship is exclusive to UP markets. Outlier-based aggregate discreteness measures indicate that information reaches investors with higher discreteness in DOWN than UP markets, consistent with the absence of momentum profitability in DOWN markets according to the FIP hypothesis.

Suggested Citation

  • Galvani, Valentina, 2024. "Frog in the Pan and the market-state effect on momentum," Finance Research Letters, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:finlet:v:63:y:2024:i:c:s1544612324004045
    DOI: 10.1016/j.frl.2024.105374
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Equity momentum; Information discreteness; Market-state; Investor attention;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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