Abstract

Titman and the referee for helpful comments, and Harry Leung for excellent research assistance. George acknowledges financial support of the Bauer professorship and When coupled with a stock’s current price, a readily available piece of information— the 52-week high price—explains a large portion of the profits from momentum investing. Nearness to the 52-week high dominates and improves upon the forecasting power of past returns (both individual and industry returns) for future returns. Future returns forecast using the 52-week high do not reverse in the long run. These results indicate that short-term momentum and long-term reversals are largely separate phenomena, which presents a challenge to current theory that models these aspects of security returns as integrated components of the market’s response to news. There is substantial evidence that stock prices do not follow random walks and that returns are predictable. Jegadeesh and Titman (1993) show that stock returns exhibit momentum behavior at intermediate horizons. A self-financing strategy that buys the top 10 % and sells the bottom 10 % of stocks ranked by returns during the past 6 months, and holds the positions for 6 months, produces profits of 1 % per month.

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