dc.description.abstract | We use common stocks listed on the NYSE, AMEX, and NASDAQ exchanges from January 1965 to December 2008 to compare the differences between two momentum strategies which are 52-week high strategy and JT’s momentum strategy. The JT’s momentum strategy is ranked by returns from the past 6 months, where George and Hwang (2004) use the 52-week high ratio to measure the stock performance. For each of two strategies, we classify stocks into winner, loser, and middle groups based on past returns (52-week high ratio), and then subdivide each group by using the 52-week high ratio (past returns). We find the return on JT strategy is positive only into the 52-week high loser group, but the returns on 52-week high strategy are always significantly positive no matter how past returns are classified. Moreover, we explore whether the 52-week high ratio shows significant explanatory power for stock returns. This paper indicates that the 52-week high ratio can explain the variation of stock returns, and this explanatory power cannot be eliminated by risk-adjustment. This research further explores whether the explanatory power of lagged returns are affected by 52-week high ratio. The empirical results also show that the momentum effect exists in the short-term, which can be eliminated by risk adjustment. While the momentum effect from medium-term is attributed to 52-week high ratio. Finally, we also consider the relationship between the returns on 52-week high strategy and investor sentiment. The results support that returns on 52-week high strategy are caused by short-term underreaction but not long-term overreaction.
| en_US |