Linking Persistence of Corporate Asset Growth with the Term Structure of Momentum and Reversal Information in Stock Returns

  • LAM, F. Y. Eric C. (PI)

    Project: Research project

    Project Details


    The observed continuation (momentum) of stock return over shorter to intermediate horizons of six to 12 months and the observed reversal of stock return over longer horizons of three to five years have posted challenge to the view of market efficiency in traditional finance theory and puzzled financial economists over the past 3 decades. These effects are found across industries, in alternative asset classes, and in stock markets internationally. The associated investment strategies not only provide statistically and economically significant profits but the profitability also does not seem to vanish after the initial discoveries. While the current literature has provided various rational and behavioral explanations, these explanations seem not to be able to keep up with the vast amount of empirical findings made available to the literature recently. This research fills this gap by providing a novel and unifying explanation and empirical analysis to (1) understand the empirical term structure of information contained in past stock returns about future returns, specifically the effects of short-term return momentum, intermediate-term momentum and long-term reversal, (2) further examine whether and how the components of the term structure, especially short-term momentum and long-term reversal, are related, (3) clarify the unexplained relation between return momentum or reversal and corporate asset growth, and (4) synthesize the stylized cross-sectional and time-series determinants of return momentum and reversal. My explanation is based on the empirical continuation versus reversion of corporate asset growth measured over different horizons and the investor behavior of preferring growth style.
    Effective start/end date1/12/1330/11/15


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