Statistical Methods in Finance 2022

June 28 to July 2, 2022


Determinants of Momentum: A Perspective From International Data

By Avanidhar Subrahmanyam
University of California, Los Angeles

There is yet no consensus on why equity markets permit momentum although the literature proposes several rationales that have been empirically tested with US data. We use outof-sample international data to assess the robustness of these rationales. We find that the frog-in-the-pan (FIP) hypothesis, which posits that investors underreact to information that arrives gradually rather than in concentrated doses, consistently wins. Also, internationally, momentum is stronger in less volatile markets and in up-markets. Information flows more gradually during these market states, implying additional support for FIP.