Abstract
This paper studies the link between momentum and long-term reversals in stock returns. I find that stocks that are making a long-term reversal generate more than 70% of the momentum portfolio's profit. Stocks that have had extreme long-horizons returns but not reversed diminish the momentum portfolio's profit and eventually cause the momentum portfolio to reverse over long-horizons. A combined momentum-reversal strategy has double the profit of momentum, persists over long-horizons and is profitable in both good and bad economic states. These results are consistent with a broad set of behavioral theories, which predict a momentum-reversal process in stock returns.
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