What Can Explain Momentum? Evidence from Decomposition

• 成果类型: Article
• 署名作者: Guo, Jiaqi; Li, Peng; Li, Youwei
• 署名单位: University of Birmingham; University of Leeds; University of Hull
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2021.4135
• 发表日期: 2022
• 页码: 6184-6218
• 关键词: momentum; momentum candidate variables; momentum decomposition; momentum crashes

摘要

This study comprehensively evaluates and ranks a large number of competing explanations for the momentum anomaly. As a benchmark for evaluation, firm fundamentals are found to be the most promising among well-known explanations of momentum, followed by prospect theory and mental accounting, and anchoring effect. Collectively, all explanations capture 31% of momentum, whereas 69% of momentum remains unexplained. This study thoroughly examines what fractions of the momentum anomaly emerge from the interaction effects between past returns and various firm characteristics. It is further found that strategies based on firm characteristics and residual momentum can significantly alleviate the severity of momentum crashes. Finally, robustness analysis is provided for choosing different formation and holding periods, excluding January observations, and analyze at the level of portfolio rather than individual stock.