Essay on Notes On The Future Stock Price

Essay on Notes On The Future Stock Price

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As we discussed in the introduction part, whether or not the future stock price could be predictable still fiercely debated in finance areas. Basing on some certain trading rule of the strategies, investors could earn abnormal returns through the predictability of stock price. This chapter is aim to review the momentum studies in recent years. Currently, there has been an extensive literature paragraphs on the alternative explanations of momentum strategies which including the source, the profit and the characteristics. Before the existance of momentum strategy, De Bondt and Thaler (1985, 1987) identified long run return reversals, which suggest the contrarian strategies of buying past losers and selling past winners to earn abnormal return. Then in 1993, the first study of momentum effect is documented by Jegadeesh and Titman, they proposed the existence of momentum effect in the US stock market by using the data of New York Stock Exchange and the American Stock Exchange during the period of 1965 to 1989, the evidence they suggested that to buy previous winners and sell past losers which can obtain1 per cent per month of abnormal profitability, which is Since the first discovery of momentum effect in US stock market, a large number of researchers had reported the momentum effect is exist in various of stock market, such as Moskowitz and Grinblatt (1999), Hong,et al (1998) Chordia and Shivakumar (2002), the profit might have little difference, but they exhibit that US stock market has the fact of momentum effect. Beside of American stock market, Rouwenhorst (1999) also tests the profitability of momentum strategies in international market ( which including Austria, Germany, France, Italy, Spain, Switzerland, Norway. et) for ...

... middle of paper ... losers and momentum profit are the reward of taking risks. Ang et al (2001) indicates winners demonstrate higher performance than their losers because they are characterized by higher correlation with the market index in a declining market. Rachwalski and Wen (2012) also concluded that “a purely risk-based explanation of momentum is insufficient” (Hobson, 2012). It is difficult to explain the momentum effect by the traditional risk –return model ( Fama and French,1996), but underlying mechanism of anomaly could be explain form the perspective of behaviour finance (Jegadeesh and Titman,1993). From the perspective of financial theories, it may have not yet explained the reason of existence of the momentum, but the most cited explanations are the initial information under reaction and delayed overreaction of stock price which related to the behavioural explanation.

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