Market States and Momentum

• DOI: 10.2139/ssrn.299927
• Publication Date: 2005-08-19T21:12:04Z
• Authors: Roberto C. Gutierrez; Michael J. Cooper; Allaudeen Hameed
• Keywords: Momentum (technical analysis)

We test overreaction theories of short-run momentum and long-run reversal in the cross section stock returns. Momentum profits depend on state market, as predicted. From 1929 to 1995, mean monthly profit following positive market returns is 0.93 percent, whereas negative 0.37 percent. The up-market reverses long-run. Our results are robust conditioning information macroeconomic factors. Moreover, we find that factors unable explain after simple methodological adjustments take account microstructure concerns.