Download or read book Two Essays on Momentum Strategy and Its Sources of Abnormal Returns written by Yu Zhang and published by . This book was released on 2010 with total page 145 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies the sources of the momentum abnormal returns. The first essay attempts to find the relative role of cross-sectional and time-series variances in generating returns from the momentum strategy. By decomposing the returns from the momentum strategy both theoretically and empirically, the first essay finds that own-stock autocovariance is an important source in generating momentum returns. More interestingly, the own-stock autocovariance comes primarily from the loser portfolio. This finding provides another explanation to the recent finding that the loser portfolio is the driving force of the momentum abnormal returns. Based on the above discovery from the first essay, the second essay attempts to find out the underlying reason for the important asymmetric own-stock autocovaraince from the loser portfolio. We find that this return predictability comes from the short-selling constraints and risks. Stocks with more severe short-selling constraints prevent pessimistic information from being released into the stock prices more quickly; and thus causes those stocks to be overpriced and auto-correlated in their returns.