Stock Return Momentum and Reversal

Abstract

Stock return momentum and reversal have been known for well over a decade. This work documents two new momentum effects that are even stronger than effects documented to date: yearly and quarterly periodicity. That is, in the long term, stock returns tend to follow a pattern every twelve months, and in the intermediate term to follow a pattern every three months. This analysis of the S&P 500 over 1970-2004 includes examination of five momentum and reversal effects by industry, calendar month, and earnings announcement month. The sustainability of stock return momentum and reversal strategies of course has some implications for implementation.