Momentum life cycle, revisited

The momentum life cycle (MLC) hypothesis proposed by Lee and Swaminathan (2000) is spurious because it is largely driven by multiplying two widely documented effects on momentum and turnover. After controlling for these two effects, what remains is a negative return pattern for late-stage momentum,...

Full description

Saved in:
Bibliographic Details
Published in:Journal of banking & finance 2021-06, Vol.127, p.106119, Article 106119
Main Authors: Chen, Tsung-Yu, Chou, Pin-Huang, Hsieh, Chia-Hsun, Ghon Rhee, S.
Format: Article
Language:English
Subjects:
Momentum life cycle
Price momentum
Trading volume
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:The momentum life cycle (MLC) hypothesis proposed by Lee and Swaminathan (2000) is spurious because it is largely driven by multiplying two widely documented effects on momentum and turnover. After controlling for these two effects, what remains is a negative return pattern for late-stage momentum, mostly driven by the higher returns of low-turnover losers. Although the higher returns of low-turnover losers disappear either under a risk adjustment or with the inclusion of NASDAQ stocks, they remain significant during periods of optimism, thus supporting the underreaction theory of momentum proposed by Hong and Stein (2007), whereby turnover proxies for the divergence of opinion among investors.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2021.106119