Momentum and autocorrelation in stock returns

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

Momentum is a pervasive phenomenon. Therefore, it is important to understand its cause. However, the empirical evidence regarding the sources of momentum is mixed. Where Lewellen (2002) finds that momentum is mainly explained by cross-serial correlations, Pan, Liano, and Huang (2004) show that it is largely due to serial correlations. In this paper, different from Lewellen (2002) and Pan, Liano, and Huang (2004), we focus on the commonly-studied momentum strategies that skip one month between the formation period and the holding period, and find that momentum is mainly explained by cross-serial correlations. This pattern shows up in different types of portfolios and in different types of momentum. Therefore, it is real not spurious. This finding presents a challenge to the popular behavioral models, because they predict that momentum is caused by serial correlations not cross-serial correlations.

Original languageEnglish (US)
Pages (from-to)157-173
Number of pages17
JournalInternational Research Journal of Finance and Economics
Volume50
StatePublished - Oct 2010

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Stock returns
Momentum
Autocorrelation
Serial correlation
Empirical evidence
Behavioral model
Momentum strategies

Keywords

  • Autocorrelation
  • Sources of momentum

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

Cite this

Momentum and autocorrelation in stock returns. / Du, Ding; Zhao, Xiaobing.

In: International Research Journal of Finance and Economics, Vol. 50, 10.2010, p. 157-173.

Research output: Contribution to journalArticle

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