A New Momentum and Reversal under Prospect Theory: Introduction and Their Implications

Prospect Theory;TK momentum;price momentum;return reversal;lottery-type stock;658

경영대학 경영학과 ;

University:서울대학교 대학원

关键词: Prospect Theory;    TK momentum;    price momentum;    return reversal;    lottery-type stock;    658;   

Others  :  http://s-space.snu.ac.kr/bitstream/10371/124631/1/000000132383.pdf

美国|英语

来源: Seoul National University Open Repository

【 摘 要 】

Based on the prospect theory value (TK value) by Barberis et al. (2014), I construct new ;;Short-term TK” by using the previous 12-month returns and ;;Extreme TK” by using only 20 extreme returns among 60-month historical returns. Although stocks with a high original TK generate low subsequent returns (reversal), stocks with high Short-term TK generate high subsequent returns (momentum). This new momentum is distinguished from price momentum, and helps to decompose the causes of price momentum into underreaction and delayed overreaction. Furthermore, Extreme TK persistently generates a larger reversal than the original TK. Also with more sophisticated analysis, I show that Extreme TK is a lottery proxy variable, whereas the original TK is not.