We examine the implications of shortand long-run consumption growth fluctuations on the momentum and contrarian profits and the value premium in a unified economic framework. By allowing time-varying firm cash flow exposures to the short-run and long-run shocks in consumption growth, we find the otherwise standard intertemporal asset pricing model goes a long way in generating the momentum and ...

While the vast majority of the literature reports momentum profitability to be overwhelming in the U.S. market and widespread in other countries, this paper finds that the pure momentum strategy in general does not yield excess profitability in the Chinese stock markets. We find instead strong mean reversion. A pure contrarian investment strategy produces positive excess returns and in general ...

We derive some results on contrarian and one-sided strategies by Skeptic for the fair-coin game in the framework of the game-theoretic probability of Shafer and Vovk [8]. In particular, concerning the rate of convergence of the strong law of large numbers (SLLN), we prove that Skeptic can force that the convergence has to be slower than or equal to O(n−1/2). This is achieved by a very simple co...

We derive some results on contrarian and one-sided strategies by Skeptic for the fair-coin game in the framework of the game-theoretic probability of Shafer and Vovk [8]. In particular, concerning the rate of convergence of the strong law of large numbers (SLLN), we prove that Skeptic can force that the convergence has to be slower than or equal to O(n−1/2). This is achieved by a very simple co...

We analyze the impact of price trends on trading decisions of more than 40, 000 households with accounts at a major discount brokerage house. Buying and selling decisions of investors in our sample are influenced by short-term (less than 3 months) price trends. By comparing the observed distributions of average trend before buys and average trend before sells with the average trend distribution...

Using “A” shares accessible only to local investors (who account for 99% of stock investors in China), this paper tests if short-horizon contrarian and intermediate-horizon investment strategies generate abnormal profits. We find statistically significant abnormal profits for both the arbitrage portfolio-investment strategies. Detailed analysis indicates that: (1) an absolute dominance of non-i...

We show that the existence of momentum and contrarian profits imposes restrictions on stochastic discount factors used to price stocks in equity markets. For several widely used asset pricing models, we demonstrate that these restrictions imply testable forms of intertemporal dependence in macroeconomic fundamentals such as consumption growth rate. Extensive empirical analysis provides supporti...