Profitability of Momentum Strategies: An Evaluation of Alternative Explanations

Authors

  • Narasimhan Jegadeesh,

  • Sheridan Titman

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    • Narashimhan Jegadeesh is from the University of Illinois at Urbana-Champaign and Sheridan Titman is from the University of Texas at Austin and the NBER. This paper has benefited from the excellent research assistance of Fei Zou and helpful comments from Werner DeBondt, David Hirshleifer, René Stultz, an anonymous referee, and finance workshop participants at the University of Chicago, University of Illinois at Urbana-Champaign, Indiana University, NBER Behavioral Finance Conference, University of Texas at Austin and Vanderbilt University.

ABSTRACT

This paper evaluates various explanations for the profitability of momentum strategies documented in Jegadeesh and Titman (1993). The evidence indicates that momentum profits have continued in the 1990s, suggesting that the original results were not a product of data snooping bias. The paper also examines the predictions of recent behavioral models that propose that momentum profits are due to delayed overreactions that are eventually reversed. Our evidence provides support for the behavioral models, but this support should be tempered with caution.

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