Momentum Strategies, Information Diffusion, and Investor Conservatism in Asian-Pacific Region

Afro-Asian Journal of Finance and Accounting, Vol. 3 (2), 136-160, 2012

Posted: 6 Jan 2013

See all articles by Tony Chieh-tse Hou

Tony Chieh-tse Hou

National Dong Hwa University

Phillip J. McKnight

University of Wisconsin - Milwaukee

Torng-Her Lee

Independent

Abstract

This study performs an out-of-sample test on momentum effects in nine Asian-Pacific stock markets from 1990 to 2002. We find little evidence on the existence of intermediate stocks return momentum. Specifically, the unrestricted momentum trading strategies appear profitable only in major developed countries but not in the emerging countries in our samples. We further investigate momentum effects through two behavioural theories: Hong and Stein’s (1999) gradual-information-diffusion model and Barberis et al.’s (1998) investor conservatism bias model. Our results support Barberis et al. (1998) model but reject the Hong and Stein’s information diffusion hypothesis. It shows the profitability of momentum strategies is positively related to analyst coverage but negatively related to analysts’ forecast dispersion. We argue that investors’ psychological conservatism biases reflect slow updating of their beliefs and underrate the importance of new information. Interestingly, we also find that book-to-market is more important than dispersion and dispersion is more important than size in explaining momentum returns.

Keywords: Asian-Pacific, analyst coverage, book-to-market, BM, conservatism, momentum, size

Suggested Citation

Hou, Tony Chieh-tse and McKnight, Phillip J. and Lee, Torng-Her, Momentum Strategies, Information Diffusion, and Investor Conservatism in Asian-Pacific Region. Afro-Asian Journal of Finance and Accounting, Vol. 3 (2), 136-160, 2012, Available at SSRN: https://ssrn.com/abstract=2196959

Tony Chieh-tse Hou (Contact Author)

National Dong Hwa University ( email )

No. 1, Sec. 2, Da Hsueh Rd.
Shoufeng
Hualien, 97401
Taiwan

HOME PAGE: http://faculty.ndhu.edu.tw/~tonycthou/

Phillip J. McKnight

University of Wisconsin - Milwaukee ( email )

Milwaukee, WI
United States

Torng-Her Lee

Independent ( email )

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