TY - JOUR
T1 - Behavioral investment strategy matters
T2 - A statistical arbitrage approach
AU - Sun, David
AU - Tsai, Shih Chuan
AU - Wang, Wei
N1 - Funding Information:
David S. Sun ([email protected]) is an assistant professor in the Department of Banking and Finance at Kainan University, Taiwan. Shih-Chuan Tsai ([email protected]) is a professor at the College of Management, National Taiwan Normal University, Taiwan. Wei Wang is a professor at the College of Economics, Zhejiang University, China. The authors acknowledge the earlier contribution of Shu-Ting Dai. The authors are grateful for a grant from the National Science Council of Taiwan. Helpful comments from participants in the 2012 Conference on East Asian Finance, the 2012 Annual Meeting of the Financial Management Association, and the 19th Conference on the Theories and Practices of Securities and Financial Markets are also gratefully acknowledged. David S. Sun and Shih-Chuan Tsai are the corresponding authors.
PY - 2013/7/1
Y1 - 2013/7/1
N2 - In this study, we employ a statistical arbitrage approach to demonstrate that momentum strategies work only in longer formation and holding periods, a result more conclusive than standard parametric tests can offer. Disposition and overconfidence effects are important factors contributing to the phenomenon. The overconfidence effect seems to dominate the disposition effect, especially in an up market. Moreover, the overconfidence investment behavior of institutional investors is the main cause for significant momentum returns observed in an up market. In a down market, the institutional investors tend to adopt a contrarian strategy while the individuals are still maintaining momentum behavior within shorter periods.
AB - In this study, we employ a statistical arbitrage approach to demonstrate that momentum strategies work only in longer formation and holding periods, a result more conclusive than standard parametric tests can offer. Disposition and overconfidence effects are important factors contributing to the phenomenon. The overconfidence effect seems to dominate the disposition effect, especially in an up market. Moreover, the overconfidence investment behavior of institutional investors is the main cause for significant momentum returns observed in an up market. In a down market, the institutional investors tend to adopt a contrarian strategy while the individuals are still maintaining momentum behavior within shorter periods.
KW - disposition effect
KW - market state
KW - momentum strategy
KW - statistical arbitrage
UR - https://www.scopus.com/pages/publications/84884796592
UR - https://www.scopus.com/pages/publications/84884796592#tab=citedBy
U2 - 10.2753/REE1540-496X4904S304
DO - 10.2753/REE1540-496X4904S304
M3 - Article
AN - SCOPUS:84884796592
SN - 1540-496X
VL - 49
SP - 47
EP - 61
JO - Emerging Markets Finance and Trade
JF - Emerging Markets Finance and Trade
IS - SUPPL.3
ER -