“52-Week High and Momentum Investing” by Chuan Yang HWANG
Chuan Yang HWANG
Hong Kong University of Science and Technology
Thomas J. GEORGE
University of Houston
We find that when coupled with stock's current price, a readily available piece of information — the 52-week high price — explains a large portion of the profits to momentum investing. Ranking by the 52-week high criterion dominates and improves upon the forecasting power of past returns (both individual stock and industry returns) for future returns. Future returns forecasted using 52-week high do not reverse in the long run. Our results indicate that short-term momentum and long-term reversals are largely separate phenomena. This presents a challenge to current theory, which models these aspects of security returns as integrated components of the market's response to news.