Year-end Sale % OFF 
Abstract
Trend extrapolation in financial markets has been well documented, however it is contentious as to which trends will be extrapolated or mean reverted. We examine whether investors are more likely to extrapolate trends that they perceive to be salient by examining an investment strategy that considers both the magnitude and the strength of the trend. Consistent with behavioral models of momentum, our investment strategy based on trend salience significantly outperforms traditional momentum strategies and is not explained by the Carhart [1997] four-factor model. The relative performance of the trend salience signal is robust across different investment horizons and size-sorted portfolios, although is time-varying; the strategy does not outperform momentum in down markets where volatility is high and salient trends are more difficult to identify.
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
