Abstract
Abstract Recent evidence indicates that momentum profits are sensitive to market conditions. We find that the profits are higher when the markets continue in the same state than when they transition to a different state. These findings support Daniel, Hirshleifer, and Subrahmanyam (1998), who suggest that investor overconfidence is higher when the markets continue in the same state (UP or DOWN) than when they reverse, predicting higher momentum profits in the former. In contrast, our evidence following DOWN markets is not consistent with the other competing models for the market-state conditional momentum profits.
Citations in this library
Stored only when both papers are in the corpus — 136 citations exist upstream.
References
1993Common risk factors in the returns on stocks and bonds1993Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency1996Multifactor Explanations of Asset Pricing Anomalies1998Investor Psychology and Security Market Under‐ and Overreactionsn.d.A model of investor sentiment /1999A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets2020Integración de los mercados financieros Latinoamericanos por medio de MILA1998A model of investor sentiment1We are grateful to the NSF for financial support, and to Oliver Blanchard, Alon Brav, John Campbell (a referee), John Cochrane, Edward Glaeser, J.B. Heaton, Danny Kahneman, David Laibson, Owen Lamont, Drazen Prelec, Jay Ritter (a referee), Ken Singleton, Dick Thaler, an anonymous referee, and the editor, Bill Schwert, for comments.1