Understanding Momentum and Reversal Investing Strategies

Momentum and reversals are two phenomena to explain the past return trend. Originally introduced by Jegadeesh Titman in 1993, momentum is now a common investment strategy when investors trading securities. It points out stock price may have relationship with their performance. A large number of researchers been trying find effect based on empirical evidence different markets periods, which include short term, medium term long term. Moreover, series research concludes that tends help get higher return. In recent years, focused more analysing financial China, they paid attention improving traditional models. addition, an increasing also point noise quite important security strategy, who using trade portfolios supposed take into consideration. Then papers tried sources effect, either risk-based or behavioural-based. When it assumes market efficient, prices could be reflected, hard excess returns observing stock's Nevertheless, likely examine inefficient. tries sources, abnormal derived from risk undiversifiable. As for behaviour-based explanation, several behavioural biases applied used study such as cognitive errors, including conservatism bias, representative emotional loss aversion overconfidence bias self-attribution bias. Another possible explanation within this source overreaction news leads existence momentum.