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      Cross-sectional and time-series momentum returns and market dynamics: evidence from Japan

      Cheema, Muhammad A.; Nartea, Gilbert V.; Szulczyk, Kenneth R.
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      SSRN_Japan-.pdf
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      DOI
       10.1080/00036846.2017.1403560
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      Cheema, M. A., Nartea, G. V., & Szulczyk, K. R. (2017). Cross-sectional and time-series momentum returns and market dynamics: evidence from Japan. Applied Economics. https://doi.org/10.1080/00036846.2017.1403560
      Permanent Research Commons link: https://hdl.handle.net/10289/11630
      Abstract
      We test the behavioural theories of overconfidence and underreaction on cross-sectional (CS) and time-series (TS) momentum returns in the Japanese stock markets. Both CS and TS momentum returns are large and significant when the market continues in the same state and turns into losses when the market transitions to another state, consistent with the overconfidence but not the underreaction model. We find that TS conditional momentum returns exceed conditional CS momentum returns because of its active position since TS takes a net long (short) position following UP (DN) markets while CS is a zero-cost strategy irrespective of the market state. Finally, we find no relation between idiosyncratic volatility (IV) and momentum returns which is not supportive of either the overconfidence or underreaction model but implies that IV is not a significant limit to arbitrage in Japan.
      Date
      2017
      Type
      Journal Article
      Publisher
      Taylor & Francis (Routledge)
      Rights
      This is an author’s accepted version of an article published in the journal: Applied Economics. © 2017 Informa UK Limited, trading as Taylor & Francis Group.
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      • Management Papers [1125]
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