The 52-week High Momentum Strategy and Economic Policy Uncertainty: Evidence from China

Abstract

ABSTRACT This is the first study to examine the 52-week high momentum strategy that takes economic policy uncertainty (EPU) into account. Empirically, we find significant 52-week high momentum in China, the second-largest stock market in the world, and our findings confirm the results of the US. We hypothesize that anchoring biases could explain the 52-week high momentum and generate significant momentum profits in low EPU periods. The empirical results show strong 52-week high momentum in low EPU periods; there is virtually no momentum when EPU is high, which supports our prediction. Further investigations show that there are no long-run reversals for the 52-week high momentum, and the negative impact of EPU on the 52-week high momentum decreases and eventually vanishes over the long term. All evidence supports the hypothesis that the 52-week high momentum is attributed to anchoring biases, especially when we consider EPU.