Left-tail momentum: Underreaction to bad news, costly arbitrage and equity returns
This paper documents a significantly negative cross-sectional relation between left-tail risk and future returns on individual stocks trading in the US and international countries. We provide a behavioral explanation to this anomaly based on the idea that investors underestimate the persistence in l...
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| Veröffentlicht in: | Journal of financial economics 2020-03, Vol.135 (3), p.725-753 |
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| container_end_page | 753 |
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| container_issue | 3 |
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| container_title | Journal of financial economics |
| container_volume | 135 |
| creator | Atilgan, Yigit Bali, Turan G. Demirtas, K. Ozgur Gunaydin, A. Doruk |
| description | This paper documents a significantly negative cross-sectional relation between left-tail risk and future returns on individual stocks trading in the US and international countries. We provide a behavioral explanation to this anomaly based on the idea that investors underestimate the persistence in left-tail risk and overprice stocks with large recent losses. Thus, low returns in the left-tail of the distribution persist into the future causing left-tail return momentum. We find that the left-tail risk anomaly is stronger for stocks that are more likely to be held by retail investors, that receive less investor attention, and that are costlier to arbitrage. |
| doi_str_mv | 10.1016/j.jfineco.2019.07.006 |
| format | Article |
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| ispartof | Journal of financial economics, 2020-03, Vol.135 (3), p.725-753 |
| issn | 0304-405X 1879-2774 |
| language | eng |
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| source | Elsevier ScienceDirect Journals Complete |
| subjects | Arbitrage Costly arbitrage Equity returns Investor inattention Investors Left-tail risk Momentum News Rates of return Retail investors Risk assessment Stocks Trading |
| title | Left-tail momentum: Underreaction to bad news, costly arbitrage and equity returns |
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