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Short-term Momentum

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  • Schmeling, Maik
  • Medhat, Mamdouh

Abstract

We document a striking pattern in U.S. and international stock returns: Double sorting on last month's return and share turnover reveals significant short-term reversal among low-turnover stocks whereas high-turnover stocks exhibit short-term momentum. Short-term momentum is as profitable and as persistent as conventional price momentum. It also survives transaction costs and is strongest among the largest, most liquid, and most extensively covered stocks. Our results are difficult to reconcile with models imposing strict rationality but are suggestive of an explanation based on some traders underappreciating the information in prices.

Suggested Citation

  • Schmeling, Maik & Medhat, Mamdouh, 2021. "Short-term Momentum," CEPR Discussion Papers 15857, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15857
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    Cited by:

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    2. Hanauer, Matthias X. & Kalsbach, Tobias, 2023. "Machine learning and the cross-section of emerging market stock returns," Emerging Markets Review, Elsevier, vol. 55(C).
    3. Yue, Tian & Li, Tianjiao & Ruan, Xinfeng, 2023. "Does short-term momentum exist in China?," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).
    4. Blanco, Ivan & De Jesus, Miguel & Remesal, Alvaro, 2023. "Overlapping momentum portfolios," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 1-22.

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    More about this item

    Keywords

    Momentum; Reversal; Trading volume; Bounded rationality;
    All these keywords.

    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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