Momentum and mean reversion across national equity markets

Ronald J. Balvers, Yangru Wu

Research output: Contribution to journalArticlepeer-review

85 Scopus citations

Abstract

Numerous studies have separately identified mean reversion and momentum. This paper considers these effects jointly. Our empirical model assumes that only global equity price index shocks can have permanent components. This is motivated in a production-based asset pricing context, given that production levels converge across developed countries. Combination momentum-contrarian strategies, used to select from among 18 developed equity markets at a monthly frequency, outperform both pure momentum and pure contrarian strategies. The results continue to hold after corrections for factor sensitivities and transaction costs. They reveal the importance of controlling for mean reversion in exploiting momentum and vice versa.

Original languageEnglish (US)
Pages (from-to)24-48
Number of pages25
JournalJournal of Empirical Finance
Volume13
Issue number1
DOIs
StatePublished - Jan 2006

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Keywords

  • International asset pricing
  • Investment strategies
  • Mean Reversion
  • Momentum

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