Momentum life cycle around the world

• Main Authors: LI, Frank Weikai, WEI, K. C. John
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2015
• Subjects: Momentum life cycle; International; ETFs; Individualism; Limits to arbitrag; Momentum profits; Corporate Finance; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/5297; https://ink.library.smu.edu.sg/context/lkcsb_research/article/6296/viewcontent/SSRN_id2565305.pdf
• Institution: Singapore Management University

The momentum life cycle (MLC) hypothesis first proposed by Lee and Swaminathan (2000) applies also to global markets. Early-stage strategies significantly outperform the late-stage and conventional strategies in most countries. Individualism culture is positively associated with late-stage but unrelated to early-stage momentum profitability, suggesting that early- and late-stage momentums are driven by different underlying mechanisms. Consistent with Stein’s (2009) model that arbitrageurs could amplify mispricing, we find that late-stage momentum profits are more pronounced in countries with lower limits to arbitrage. Furthermore, we find that the MLC also applies to exchange traded funds in the United States.