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Profiting from past winners and losers

Author

Listed:
  • Nauzer Balsara

    (College of Business and Management, Northeastern Illinois University)

  • Lin Zheng

Abstract

This paper posits that information diffusion is a function of its dissemination and assimilation. Whereas dissemination is proportional to observable factors such as volume and price volatility, assimilation is dependent on unobservable factors such as the usefulness and reliability of information. It is found that buying low-volume (or low-volatility) past losers and shortselling low-volume (or low-volatility) past winners generates a positive net return across the entire sample period and especially during bear markets. In addition, buying high-volatility past winners and shortselling high-volatility past losers generates a positive net return, especially during bear markets.

Suggested Citation

  • Nauzer Balsara & Lin Zheng, 2006. "Profiting from past winners and losers," Journal of Asset Management, Palgrave Macmillan, vol. 6(5), pages 329-344, January.
    • Handle: RePEc:pal:assmgt:v:6:y:2006:i:5:d:10.1057_palgrave.jam.2240186
    DOI: 10.1057/palgrave.jam.2240186
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    Cited by:

    1. Chelley-Steeley, Patricia & Siganos, Antonios, 2008. "Momentum profits in alternative stock market structures," Journal of Multinational Financial Management, Elsevier, vol. 18(2), pages 131-144, April.
    2. Timo H Leivo & Eero J Pätäri, 2011. "Enhancement of value portfolio performance using momentum and the long-short strategy: The Finnish evidence," Journal of Asset Management, Palgrave Macmillan, vol. 11(6), pages 401-416, February.
    3. Guosheng Hu & Yuxin Hu & Kai Yang & Zehao Yu & Flood Sung & Zhihong Zhang & Fei Xie & Jianguo Liu & Neil Robertson & Timothy Hospedales & Qiangwei Miemie, 2017. "Deep Stock Representation Learning: From Candlestick Charts to Investment Decisions," Papers 1709.03803, arXiv.org, revised Feb 2018.

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