NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Profitability of Momentum Strategies: An Evaluation of Alternative Explanations

Narasimhan Jegadeesh, Sheridan Titman

NBER Working Paper No. 7159
Issued in June 1999
NBER Program(s):   AP   CF

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 1990's 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 which are eventually reversed. Our evidence provides support for the behavioral models, but this support should be tempered with caution. Although we find no evidence of significant return reversals in the 2 to 3 years following the following formation date, there are significant return reversals 4 to 5 years after the formation date. Our analysis of post-hiding period returns sharply rejects a claim in the literature that the observed momentum profits can be explained completely by the cross-sectional dispersion in expected returns.

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Document Object Identifier (DOI): 10.3386/w7159

Published: Jegadeesh, Narasimhan and Sheridan Titman. "Profitability Of Momentum Strategies: An Evaluation Of Alternative Explanations," Journal of Finance, 2001, v56(2,Apr), 699-720.

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