Negative Momentum Profit in Korea and its Sources

To analyze the negative momentum profit in Korea, we further divide the decomposition of Lo and MacKinlay (1990) into winners' and losers' auto‐ and cross‐serial covariances. We find that the negative autocovariance and the positive cross‐serial covariance in Lo and MacKinlay's decomp...

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Bibliographic Details
Published in:Asia-Pacific Journal of Financial Studies 2009, 38(2), , pp.211-236
Main Authors: Chae, Joon, Eom, Yunsung
Format: Article
Language:English
Subjects:
Autocovariance
Cross-serial Covariance
Lo and MacKinlay Decomposition
Market-wide Information
Negative Momentum Profit
경영학
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Summary:To analyze the negative momentum profit in Korea, we further divide the decomposition of Lo and MacKinlay (1990) into winners' and losers' auto‐ and cross‐serial covariances. We find that the negative autocovariance and the positive cross‐serial covariance in Lo and MacKinlay's decomposition are asymmetric between winners and losers. The negative autocovariance is mainly from losers and the positive cross‐serial covariance mainly between past winners and current losers. By investigating time‐series characteristics of auto‐(cross‐serial) covariances, we cannot observe any systematic change of auto‐(cross‐serial) covariances in the momentum period. Based upon the evidence in this paper, we argue that positive cross‐serial covariance between past winners and current losers seems to be an important driving force behind the negative momentum profit in Korea. Therefore, investors' underreaction to market‐wide information would be plausible explanation of the negative momentum profit.
ISSN:1226-1165
2041-9945
2041-6156
DOI:10.1111/j.2041-6156.2009.tb00013.x