Heterogeneous Beliefs and Momentum Profits

2007 ◽  
Author(s):  
Michela Verardo
Keyword(s):  
Heterogeneous Beliefs ◽  
Momentum Profits

Heterogeneous Beliefs and Momentum Profits

2009 ◽  
Vol 44 (4) ◽  
pp. 795-822 ◽  
Author(s):  
Michela Verardo
Keyword(s):  
Stock Returns ◽  
Information Diffusion ◽  
Theoretical Models ◽  
Analyst Forecasts ◽  
Heterogeneous Beliefs ◽  
Cross Sectional ◽  
Short Sale Constraints ◽  
Short Sale ◽  
Momentum Profits ◽  
Arbitrage Risk

AbstractRecent theoretical models derive return continuation in a setting where investors have heterogeneous beliefs or receive heterogeneous information. This paper tests the link between heterogeneity of beliefs and return continuation in the cross-section of U.S. stock returns. Heterogeneity of beliefs about a firm’s fundamentals is measured by the dispersion in analyst forecasts of earnings. The results show that momentum profits are significantly larger for portfolios characterized by higher heterogeneity of beliefs. Predictive cross-sectional regressions show that heterogeneity of beliefs has a positive effect on return continuation after controlling for a stock’s visibility, the speed of information diffusion, uncertainty about fundamentals, information precision, and volatility. The results in this paper are robust to the potential presence of short-sale constraints and are not explained by arbitrage risk.

Are Indian Investors Return Chasers? An Anatomy of their Trading Behavior

GIS Business ◽  
2016 ◽  
Vol 11 (3) ◽  
pp. 32-44
Author(s):  
Martin Bernard ◽  
Malabika Deo
Keyword(s):  
Equity Returns ◽  
Trading Behavior ◽  
Momentum Effect ◽  
Momentum Strategy ◽  
Price Momentum ◽  
Momentum Profits ◽  
Indian Context ◽  
Time Period ◽  
Monthly Return ◽  
Indian Stock Market

Momentum has remained an unanswered anomaly in finance literature. Researchers have pointed out two arguments, whether the source of prior return anomalies are rational or behavioral. In this paper, we examined return chasing tendency investors and the profitability of probable price momentum strategy in Indian equity market using the monthly return data of equities represented in BSE-500 index encompassing the time period from July 2004 to Jun 2014. Study is an attempt to analyze momentum effect before, during and after the financial crisis of 2007–2009 to check whether investors continue to follow the same strategy during crisis or their behavior undergoes any change. Also study examined the adequacy of rational CAPM models to explain momentum profits. The result evidenced a strong presence of economically and statistically significant momentum profit in Indian stock market equity returns. Therefore return chasing tendency of Indian investors is found to be persistent in the intermediate horizon in Indian context. Closer observation of the results reveals that, Indian investors are winners chasers rather than investor in past losers. Study also confirmed that investors sentiments are volatile according to general market environment and inadequacy of rationalist equilibrium model to explain momentum profits.

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