Please use this identifier to cite or link to this item: http://scholarbank.nus.edu.sg/handle/10635/145430
Title: MOMENTUM AND REVERSAL: A DECOMPOSITION
Authors: HAIFENG WU
Keywords: Weighted Relative Strength, Momentum, Reversal, Decomposition
Issue Date: 10-Apr-2018
Citation: HAIFENG WU (2018-04-10). MOMENTUM AND REVERSAL: A DECOMPOSITION. ScholarBank@NUS Repository.
Abstract: We decompose a weighted relative strength portfolio into an alpha component, which captures long-term price reversal, a market beta component, which gauges dynamic market exposure, and a residual component, where intermediate-term price momentum manifests itself. Within this framework, we establish a dichotomy between momentum and reversal, showing that the two phenomena are independent. Most empirical evidence in the extant literature that has shaped our knowledge of momentum, including the reversing feature of its profitability, needs to be reinterpreted according to our decomposition. Our results suggest a wary attitude one should take with respect to the theories that model momentum and reversal coherently. The decomposition also helps evaluate the alternative explanations for long-term reversal given its disconnection with the momentum effect.
URI: http://scholarbank.nus.edu.sg/handle/10635/145430
Appears in Collections:Ph.D Theses (Open)

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