Abstract
Abstract For the Taiwanese stock market, evidence from the present study documents significant reversal in January-February, but strong momentum in March-December when there are increases of lagged M1B. Moreover, the M1B-induced momentum manifests only over economic expansion, rather than economic recession. Both the reversal and the momentum can be partly explained by unrealized capital gains, implying the disposition effect to some extent driving both phenomena since Grinblatt and Han (2005) used unrealized capital gains as a proxy for the disposition effect. We further find the reversal primarily occurring in January, implying reverse disposition trading occurring before the beginning of a year. As there are no capital gain taxes levied in Taiwan, the reverse disposition trading cannot be related to tax-loss selling as in U.S. Furthermore, time-varying market risk exposure cannot explain the reversal in most cases. For the March-December momentum, apart from unrealized capital gains, the CAPM and the Fama-French 3-factor models can each to some extent explain the momentum. JEL classification numbers: G10, G11, G19. Keywords: Price momentum; Reversal; Disposition effect; Emerging stock market.
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