Abstract
A prior research detects significant seasonal Taiwanese momentum. In this follow-up analysis, I report the seasonal momentum can neither be interpreted by the industy effect suggested by Moskowitz and Grinblatt (1999), nor the market state effect proxy for either overreaction suggested by Daniel et al. (1998) or gradual dessenmination of informationby by Hong and Stein (1999). Note, however, that the industry effect does explain about 40% of the profitability of the Taiwaneses momentum.
Highlights
Since the pioneering work of Jegadeesh and Titman (1993), price momentum has been the interest of enormous studies
3.1 Momentum Returns Controlling for Industy Effect
I report further evidence that the seasonal momentum can neither be interpreted by the industy effect suggested by Moskowitz and Grinblatt (1999), nor the market state effect proposed by Cooper et al (2004)
Summary
Since the pioneering work of Jegadeesh and Titman (1993), price momentum has been the interest of enormous studies. DHS suggest that investors are facing overconfidence bias and as more information is in favour of their previous prediction, self-attribution bias makes investors become even more overconfident and hold more positions They assert that bullish markets tend to attract more momentum trading than bearish markets and thereby are followed by higher momentum profits. HS predict that momentum traders are stimulated to buy more securities in the presence of price continuation, resulting in buying forces that push prices further up Both models profile up markets leading higher momentum profits than down markets (Cooper et al, 2004). Providing further evidence of their research, this paper investigates the explanatory power of the industry effect and market states, respectively, for the April-Auguest momentum.
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