Abstract
We find that the 52-week high effect (George and Hwang, 2004) cannot be explained by standard risk factors. Instead, it is more consistent with investor underreaction caused by anchoring bias: the presumably more sophisticated institutional investors suffer less from this bias and buy (sell) stocks close to (far from) their 52-week highs. Further, the effect is mainly driven by investor underreaction to industry instead of firm-specific information. The extent of underreaction is more for positive than for negative industry information. The 52-week high strategy works best among stocks with high factor model R-squares and high industry betas (i.e., stocks whose values are more affected by industry factors and less affected by firm-specific information). An industry 52-week high strategy to buy (sell) industries whose total capitalizations are close to (far from) their 52-week highs outperforms an idiosyncratic 52-week high strategy to buy stocks with prices close to their 52-week highs and short stocks in the same industry with prices far from their 52-week highs.
Original language | English |
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Pages (from-to) | 111-130 |
Number of pages | 20 |
Journal | Pacific Basin Finance Journal |
Volume | 32 |
DOIs | |
State | Published - Apr 1 2015 |
Bibliographical note
Publisher Copyright:© 2015.
Keywords
- 52-week high effect
- Idiosyncratic information
- Industry information
- Momentum
ASJC Scopus subject areas
- Finance
- Economics and Econometrics