Finance academics who studied how information flow shapes momentum
Zhi Da, Umit G. Gurun & Mitch Warachka
Zhi Da (University of Notre Dame), Umit G. Gurun (University of Texas at Dallas) and Mitch Warachka (Chapman University) are finance academics. Their paper 'Frog in the Pan: Continuous Information and Momentum' appeared in The Review of Financial Studies in July 2014 (vol. 27, no. 7, pp. 2171-2218).
What they argue
- Investors underreact to information that arrives in many small, steady pieces, like a frog in slowly heating water, so momentum built that way lasts longer.
- Momentum ran 5.94% for stocks with continuous information versus -2.07% for stocks with discrete information and similar past returns, and the continuous kind does not reverse in the long run.
Sources
Summaries are Be The Puck's paraphrase of public material. Be The Puck has no affiliation with the people listed.
Books and papers
- Frog in the Pan: Continuous Information and Momentum, Review of Financial Studies 27(7): 2171-2218 (2014)
Frog-in-the-pan momentum (12-1 with steady gains)
Rule and full recordMomentum · daily
Momentum built from many small up days lasts longer than momentum from a few big jumps, because investors underreact to slow, steady news. Hold a 12-1 winner only if more of its days were up than down.
Best risk-adjusted results against buy and hold: