| dc.description.abstract | This thesis examines whether investor limited attention drives momentum effect in FX markets with reference to the frog-in-the-pan (FIP) hypothesis. FIP hypothesis posits that FIP investors tend to under-react to information arriving continuously in gradual changes, as like a frog in a pan, and induce stronger momentum effect. Data include 48 currencies and cover the sample period for 40 years. The empirical results show that the average of returns for momentum strategies are up to 15\% per annum. (p.a.). Furthermore, sorted by information discreteness, momentum returns are up to 40\% following continuous information. By contrast, momentum returns become insignificantly different from zero following discrete information. After doing cross-sectional regressions and robustness checks, the findings demonstrate three conclusions as follows. First, momentum effect still exist in FX markets until 2016; Second, discrete information mitigates momentum effect due to more attention from investors, while continuous information induces stronger momentum effect; Third, investor limited attention leads to under-reaction and further contributes to momentum effect. To some extent that this phenomenon exists in individual currencies. Interestingly, with characteristics of having high liquidity, huge transaction volume, and a large number of professional investors, behavioral biases still influence investors′ decision-making and drive momentum effect in FX markets. | en_US |