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Can Stock Price Momentum Be Explained By Anchoring?

Author

Listed:
  • Hans-Peter Burghof
  • Felix Prothmann

Abstract

Using German stock data from 1980 to 2008, this study tests whether stock price momentum can be explained by anchoring – a specific form of non-rational behavior. Three different empirical tests indicate that anchoring is the driver of the 52-week high strategy which is long in stocks with a price at or close to their one year high price and short in stocks with a price far from their 52-week high. With sorting and regression approaches, it is further shown that the 52-week high strategy itself largely dominates the momentum strategy and that the distance of a stock’s price to its 52-week high price is a better predictor of future returns than the momentum criterion.

Suggested Citation

  • Hans-Peter Burghof & Felix Prothmann, 2009. "Can Stock Price Momentum Be Explained By Anchoring?," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 3(2), pages 47-69.
    • Handle: RePEc:ibf:ijbfre:v:3:y:2009:i:2:p:47-69
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    File URL: http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v3n2-2009/IJBFR-V3N2-2009-4.pdf
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    Citations

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    Cited by:

    1. Hans-Peter Burghof & Felix Prothmann, 2011. "The 52-week high strategy and information uncertainty," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 25(4), pages 345-378, December.
    2. Friedrich-Carl Franz & Tobias Regele, 2016. "Beating the DAX, MDAX, and SDAX: investment strategies in Germany," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 30(2), pages 161-204, May.
    3. Keith Anderson & Tomasz Zastawniak, 2017. "Glamour, value and anchoring on the changing /," The European Journal of Finance, Taylor & Francis Journals, vol. 23(5), pages 375-406, April.

    More about this item

    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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