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Momentum and behavioral finance: Working paper series--10-16

Du, Ding (2010) Momentum and behavioral finance: Working paper series--10-16. Working Paper. NAU W.A. Franke College of Business.


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Bulkley and Nawosah (2009) recently find that momentum in individual stock returns is explained by dispersion in unconditional mean returns, which suggests a risk-based explanation for momentum. However, they do not decompose the momentum component due to time-series dependence into the component due to serial correlation and that due to cross-serial correlation. Therefore, their approach may underestimate the importance of time-serial dependence if the serial correlation component has opposite sign from the cross-serial correlation component. Motivated by this observation, we apply the Du and Watkins (2007) methodology, which enables an unbiased decomposition of momentum profits into three relevant components. Different from Bulkley and Nawosah (2009), we find that momentum is due to both dispersion in unconditional mean returns and time-series dependence. Our findings therefore suggest that risk or behavioral biases in isolation may not be sufficient to explain momentum.

Item Type: Monograph (Working Paper)
Publisher’s Statement: Copyright, where appropriate, is held by the author.
Keywords: Working paper, Momentum, Dispersion in Unconditional Mean Returns, Time-Series Dependence
Subjects: H Social Sciences > HG Finance
NAU Depositing Author Academic Status: Faculty/Staff
Department/Unit: The W.A. Franke College of Business
Date Deposited: 17 Oct 2015 19:57
URI: http://openknowledge.nau.edu/id/eprint/1487

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