Short-Term Reversals and Longer-Term Momentum around the World: Theory and Evidence

Narasimhan Jegadeesh; Jiang Luo; Avanidhar Subrahmanyam; Sheridan Titman

doi:10.1093/rfs/hhaf057

Short-Term Reversals and Longer-Term Momentum around the World: Theory and Evidence

Narasimhan Jegadeesh¹; Jiang Luo²; Avanidhar Subrahmanyam³; Sheridan Titman⁴

¹ Goizueta Business School, Emory University · ² Nanyang Business School, Nanyang Technological University · ³ Anderson Graduate School of Management, University of California at Los Angeles, United States, and the Institute for Global Finance , · ⁴ McCombs School of Business Administration, University of Texas at Austin, and the National Bureau of Economic Research ,

Review of Financial Studies 2025

Stock returns exhibit reversals at short horizons but slowly transition to momentum over longer horizons. To help understand this pattern, we develop a multiperiod model with short- and long-horizon noise traders, and active investors who underreact to information they do not themselves produce. The model accords with the transition from reversals to momentum and yields the following novel predictions: (a) attenuated reversals after earnings announcements, (b) a negative relation between monthly reversal and longer-term momentum profits across economies and time, and (c) larger reversals when there is more noise trading. Empirical analysis using U.S. and international data supports these predictions.

DOI: 10.1093/rfs/hhaf057
Volume: 38 (12)
Pages: 3673-3728
Language: en
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