The long-lasting momentum in weekly returns

Abstract

Reversal is the current stylized fact of weekly returns. However, we find that an opposing and long-lasting continuation in returns follows the well-documented brief reversal. These subsequent momentum profits are strong enough to offset the initial reversal and to produce a significant momentum effect over the full year following portfolio formation. Thus, ex post, extreme weekly returns are not too extreme. Our findings extend to weekly price movements with and without public news. In addi-tion, there is no relation between news uncertainty and the momentum in 1-week returns. RETURNS OF INDIVIDUAL STOCKS reverse in the short run. Lehmann (1990) and Jegadeesh (1990) find that stocks with the lowest returns over the prior week or month outperform stocks with the highest returns over the prior period. Given these findings, the literature currently views extreme weekly returns as larger than those warranted by a stock’s fundamentals, due to overreaction and/or to microstructural issues. However, we find evidence suggesting that extrem