Momentum and Mean Reversion Across National Equity Markets

@article{RePEc:wvu:wpaper:04-11, abstract = {A number of studies have separately identified mean reversion and momentum, but this paper considers these effects jointly: Potential for mean reversion and momentum is combined optimally into one indicator, interpretable as a risk-adjusted expected return. Combination momentum-contrarian strategies, used to select from among 18 developed equity markets at a monthly frequency, outperform both pure momentum and pure contrarian strategies. A key assumption is that, among developed markets, only global equity price index shocks can have permanent components, as would be reasonable in a production-based asset-pricing context, given that production levels converge across developed countries. The results hold with basic risk corrections and continue to hold after transactions costs are included. They reveal that it is important to control for mean reversion in exploiting momentum and vice versa.}, author = {Balvers, Ronald J. and Wu, Yangru }, citeulike-article-id = {962748}, institution = {Department of Economics, West Virginia University}, keywords = {equity, mean, momentum, reversion, stocks}, month = {November}, number = {04-11}, posted-at = {2006-11-27 09:05:33}, priority = {0}, title = {Momentum and Mean Reversion Across National Equity Markets}, year = {2004} }

TY - JOUR ID - RePEc:wvu:wpaper:04-11 L3 - citeulike-article-id:962748 TI - Momentum and Mean Reversion Across National Equity Markets IS - 04-11 N2 - A number of studies have separately identified mean reversion and momentum, but this paper considers these effects jointly: Potential for mean reversion and momentum is combined optimally into one indicator, interpretable as a risk-adjusted expected return. Combination momentum-contrarian strategies, used to select from among 18 developed equity markets at a monthly frequency, outperform both pure momentum and pure contrarian strategies. A key assumption is that, among developed markets, only global equity price index shocks can have permanent components, as would be reasonable in a production-based asset-pricing context, given that production levels converge across developed countries. The results hold with basic risk corrections and continue to hold after transactions costs are included. They reveal that it is important to control for mean reversion in exploiting momentum and vice versa. KW - equity KW - mean KW - momentum KW - reversion KW - stocks AU - Balvers, Ronald AU - Wu, Yangru PY - 2004/11// ER -