Journal of Empirical Finance 35 (2016) 68–77

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Journal of Empirical Finance

journal homepage: www.elsevier.com/locate/jempfin

A risk-return explanation of the momentum-reversal “anomaly”

G. Geoffrey Booth a,1, Hung-Gay Fung b,2, Wai Kin Leung c,⁎
a
Eli Broad Graduate School of Management, Michigan State University, 645 West Shaw Lane, East Lansing, MI 48824-1121, USA
b
College of Business Administration, University of Missouri, St. Louis, One University Blvd., St. Louis, MO 63121, USA
c
Nottingham University Business School China, University of Nottingham Ningbo, 199 Taikang East Road, Ningbo 315100, China

a r t i c l e i n f o a b s t r a c t

Article history: This study investigates the nature of the momentum-reversal phenomenon exhibited by U.S.
Received 16 July 2015 stock returns from 1962 to 2013. We use cumulative future returns of long–short portfolios,
Received in revised form 4 October 2015 which are formed using prior returns as benchmarks, after portfolio formation to analyze the
Accepted 6 October 2015
well-documented momentum-reversal pattern. Contrary to many previous studies our results
Available online 23 October 2015
demonstrate that there is no momentum-reversal anomaly. We show that size (market capital-
ization), which is often considered a proxy for risk, eventually dominates momentum's initial
JEL classification: effect, causing stock prices and, hence, returns to move in the opposite direction. We demon-
G12
strate that this latter price movement is likely to be related to institutional trading.
Keywords: © 2015 Elsevier B.V. All rights reserved.
Asset pricing
Stock returns
Momentum
Market capitalization

1. Introduction

Investment practitioners and academicians have long searched for time series patterns in stock prices and trading strategies
to exploit them. Whether these price patterns actually exist is a hotly debated topic. Many believe that these patterns are an ex-
ample of a type of apophenia that involves seeing patterns that do not exist in a sequence of random numbers. Others suggest
that price patterns exist temporarily but disappear as a result of investors profitably exploiting the observed relationship. Still
others accept that a blending of these two notions may account for the observed stock price patterns, but maintain that only
a few of the patterns are indeed real and last long enough to allow profits to be earned by strategically constructed investment
plans.
One such pattern falling into the last category is price momentum-reversal. Price momentum occurs when a stock's price
moves in the same direction for a recognizable period of time. Stocks with a recent history of over-performance are labeled as
winners while those with one of underperformance are named losers. Profits are obtained by strategically creating long–short
portfolios by simultaneously taking a long position in winner stocks and a short position in loser stocks during the momentum
phase and then unwinding the position when this phase ends. A reversal occurs when the long–short portfolio experiences op-
posite return behavior in the long run; i.e., winners become losers and vice versa. The profitability of this long–short strategy

⁎ Corresponding author. Tel.: +86 574 88180325.

E-mail addresses: [email protected] (G. Geoffrey Booth), [email protected] (H.-G. Fung), [email protected] (W.K. Leung).
1
Tel.: +1 517 884 2986.
2
Tel.: +1 314 516 6374.

http://dx.doi.org/10.1016/j.jempfin.2015.10.007
0927-5398/© 2015 Elsevier B.V. All rights reserved.
 G. Geoffrey Booth et al. / Journal of Empirical Finance 35 (2016) 68–77 69

Table 1
Summary statistics.

Year 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2013

No. of stocks in 2166 2409 5256 5024 6409 6853 8360 8468 6885 6642 6669
sample
Mean value of NA NA NA 0.109 0.152 0.196 0.258 0.280 0.370 0.409 0.391
institutional
investor ratio
Percentage of NA NA NA 0.310 0.196 0.119 0.061 0.054 0.065 0.025 0.196
stocks with no
institutional
investors
Maximum market 20,380 28,429 31,025 41,468 75,820 67,527 95,492 524,352 367,495 290,960 401,730
capitalization
Mean market 195.5 182.9 152.2 231.4 298.7 458.2 683.7 2059.8 2416.1 2334.4 3547.2
capitalization
Minimum market 0.063 0.189 0.008 0.033 0.025 0.035 0.005 0.070 0.280 0.584 0.228
capitalization
Maximum NA NA NA 999.5 1459.2 1797.7 2990.6 229,274.3 9074.7 16,050.4 13,927.6
institutional
trading
Mean institutional NA NA NA 9.3 17.1 25.6 36.8 239.5 134.7 159.5 201.3
trading
Minimum NA NA NA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
institutional
trading
No. of institutional NA NA NA 2132 3623 3919 6201 6582 5749 5984 5138
traders

Notes: In each month from January 1963 to December 2013 we find from NYSE, AMEX, NASDAQ, and NYSE Arca stocks the market capitalization of each stock on
the last day of each month, the monthly turnover by adding the daily turnover in each month and the monthly return. In each quarter from 1980 onward we
retrieve from the WRDS Institutional (13f) Holdings data the institutional investor ratio (shares held by institutional investors/share outstanding at end of quarter)
and the institutional trading (value of shares newly bought by institutional investors in that quarter provided they already held shares in the previous quarter). All
values except return are in millions of dollars. We report here the June values for each year.

has been documented in numerous studies of U.S. stocks using a variety of techniques to determine which stocks are winners and
which are losers (e.g., George and Hwang, 2004; Jegadeesh and Titman, 1993; Novy-Marx, 2012).3 Price reversals have also been
empirically identified (e.g., De Bondt and Thaler, 1987; Jegadeesh and Titman, 2001).
Numerous attempts have been made to explain why momentum exists and why the accompanying long–short strategy may
be profitable. Rational actions do not seem to explain momentum adequately nor do various firm characteristics (e.g., Bandarchuk
and Hilscher, 2013; Conrad and Kaul, 1998; Johnson, 2002; Sagi and Seasholes, 2007). Transaction costs are also unable to explain
adequately the phenomenon (e.g., Korajczyk and Sadka, 2004; Lehmann, 1990; Lesmond et al., 2004). Jegadeesh and Titman
(2001), however, show that momentum profits may be the result of delayed overreactions of information that are subsequently
reversed. This behavioral explanation is supported by a large number of overreaction/under-reaction studies (e.g., Antoniou et al.,
2013; Barberis et al., 1998; Chan et al., 1996; Daniel et al., 1998; De Bondt and Thaler, 1987; Frazzini, 2006; Grinblatt and Han,
2005; Hong and Stein, 1999; Hong et al., 2000; Lu, 2014).
Although it may be possible to obtain important insights into financial phenomena using a behavioral approach, we contend
that the well-documented pattern of momentum-reversal may be more simply explained using the traditional risk-return para-
digm. We support our conjecture by demonstrating that the observed momentum pattern is strongly related to the pervasive in-
fluence of firm size as measured by market capitalization, which, as Berk (1995) suggests, is a ubiquitous proxy for risk. Our
supposition rests on the notion that large institutional traders tend to take significant positions in the stocks of large companies
instead of small ones, because the stocks of smaller firms are often less attractive purchases as a result of various attributes of
these stocks such as short-selling restrictions, lack of market depth, and information asymmetry, all of which contribute to
some aspect of risk.
Our analysis is based on the double-sort procedure that is used by many of the studies cited above. This procedure constructs
portfolios of stocks that are identified by returns and other characteristics. Portfolios are used to minimize or possibly even elim-
inate the idiosyncratic effects of individual stocks. The stocks are then sorted by returns or other characteristic. After sorting, the
stocks are divided into quantiles, with quintiles and deciles being the most frequently used segmentation schemes. The stocks in
each quantile are then sorted again using a characteristic that is not used in the first sort.
To ensure that our data cover many stock price cycles and represent a deep market, we consider U.S. stocks that are traded on
four domestic exchanges for a 52 year period beginning with the first month in 1962. Our data for individual firms consist of stock

3
Similarly, momentum has been documented in other asset classes in the U.S. as well as in various other markets throughout the world (e.g., Asness et al., 2013:
Bhojrai and Swaninathan, 2006; Moskowitz et al., 2012: Rouwenhorst, 1998). Industry momentum has also been reported (e.g., Moskowitz and Grinblatt, 1999).
70 G. Geoffrey Booth et al. / Journal of Empirical Finance 35 (2016) 68–77

returns, size as measured by market capitalization and institutional trading. For reasons to be discussed later (see Section 3) we first
sort using returns and form quintiles. We then sort our return quintiles using a characteristic derived from our data. Finally, we con-
struct various long–short portfolios based on our constructed portfolios and assess their relative strategic performance.
Our analysis makes two meaningful contributions to the understanding of momentum. First, the observed momentum-price
reversal pattern puzzle is largely related to firm size, which serves as a proxy for risk. Our results are robust across size differences
in the long and short positions of stocks in the strategic portfolios regardless of the portfolio formation technique used. They also
are generally consistent with the literature indicating that, on average, small firms yield more positive returns than large firms
(e.g., Banz, 1981; Fama and French, 1992). Second, we show that institutional investors appear to trade primarily the stocks of
large firms, which leads to lower returns as a result of not exploiting the small-firm effect. We also show that their trading
behavior is consistent with the observed momentum-reversal pattern found in our long–short portfolios. Our results provides ad-
ditional insights into the trading of institutional investors whose routine actions appear not to follow momentum, in contrast to
the behavior suggested in the extant trading literature (e.g., Nofsinger and Sias, 1999; Yan Zhang, 2009).

2. Data sources and description

Our data consist of stock price, return and volume (including institutional trading) data from four U.S. stock exchanges (AMEX,
NASDAQ, NYSE, NYSE Arca) spanning a 52-year period beginning in January 1962 and ending in December 2013. With the excep-
tion of institutional trading all of our data are supplied by the Center for Research in Security Prices (CRSP). We obtain the insti-
tutional trading information from Thomson Reuter, Institutional Trading (13F). All of the information is downloaded from
Wharton Research Data Services (WRDS).
For each month in the data sample, we retrieve the monthly return and the market capitalization of each stock on the last day
of the month. For each quarter after 1980 (previous data are not available), we download for each stock the shares held by insti-
tutional investors, the number of shares outstanding at end of quarter, and the institutional trading volume (the value of shares
newly bought by institutional investors in that quarter, provided they held shares in the previous quarter) for that quarter. We
define the institutional investor ratio to be the shares held by institutional investors divided by the number of shares outstanding
at end of quarter.
Table 1 provides select summary statistics of the variables in five year intervals from 1965 to 2010 and 2013. All observations
are for the month of June. By way of illustration, in June 2013, there are 6669 stocks. The stock with the largest capitalization is
valued at $401.7 billion and the smallest has a market value of $228 thousand. The average market capitalization for these stocks
is $3.5 billion. The average of the institutional investor ratio is 0.391, while 19.6% of the stocks are not owned by institutions. From
the beginning of our sample, the number of stocks, institutional trading activity and market capitalization has noticeably in-
creased, although the values for these variables peaked around the turn of the 21st century.4

3. Method of analysis

The standard approach to investigate the various issues surrounding momentum is to construct portfolios of stocks that tend
to over-perform or underperform over time. Over-performing stocks are labeled winners and underperforming stocks are dubbed
losers. To quantify performance some measure of return is selected. This measure is used to rank the stocks. The ranked stocks are
then segmented into quantiles, with quintiles and deciles being the most common groupings. Winner stocks are those in the top
quantile and loser stocks are in the bottom quantile. The winner and loser portfolios are then strategically combined to create
long–short trading strategies. For example, one strategy might be longing the winners and shorting the losers. This portfolio for-
mation procedure can be extended to consider other stock characteristics than performance such as market capitalization. Thus
the portfolio construction rubric can be designed so that the performance to be examined is associated only with the stocks as-
sociated with that characteristic. For example, a trading strategy might be longing large capitalization winners and shorting small
capitalization losers.
To implement the approach, there are at least three important issues to resolve. First, there is no agreed upon metric to iden-
tify which stocks are winners and which ones are losers. For example, Jegadeesh and Titman (1993) use the return obtained in
the prior month as the winner–loser criterion, and Novy-Marx (2012) relies on the previous 2–6 and 7–12 months return.
George and Hwang (2004), however, employ the price ratio (the closing price at a particular time divided the prior-period closing
price), while Moskowitz et al. (2012) use past returns scaled by a risk factor. Each approach has its merits.
Second, there is disagreement as to whether returns or a stock characteristic should be the focus of the first sort. In most stud-
ies, returns are used in the first sort. Bandarchuk and Hilscher (2013), however, propose the opposite and sort by a firm-
characteristic first and then sort by returns. Sorting first by returns guarantees that stocks will be correctly classified as winners
or losers. Sorting second by returns provides no such guarantee. In other words, the first sort provides an unconditional ranking
while the second sort gives in a conditional ranking with the ranking from the first sort being the conditioning agent. Thus, the
order of the sort is determined by the purpose of the analysis.
Third, the appropriate way to measure the future returns of the winner–loser portfolio after portfolio formation is also subject
to debate. Many prior studies use the Jegadeesh and Titman (1993) approach to evaluate future returns (e.g., George and Hwang,

4
Institutional trading activity was especially large at this time, which was partially due to the boom in the technology industry. For example, during the second quar-
ter of June 2010, 1038 Fund managers increased shares in Intel Corp. by 6.7 billion shares at a total cost of approximately $229 billion.
 G. Geoffrey Booth et al. / Journal of Empirical Finance 35 (2016) 68–77 71

Table 2
Sorting for global winners and losers.

Panel A. First sort by previous 6-month return

Quintile Average previous 6-month return Global loser in 103 sorts Global winner in 103 sorts

1 Lowest 103 0
2 2nd lowest 0 0
3 Medium 0 0
4 2nd highest 0 0
5 Highest 0 103
Total 103 103
Note: Starting from December 1962, we sort all stocks into quintiles by their previous 6-month return. We do this every 6 months, which results in a total of 103
sorts from December 1962 to December 2013. If the average previous 6-month return of a quintile is the lowest (highest) among the five quintiles in a sort, we
call it global loser (winner) in that sort. For each quintile we calculate the number of sorts of that group being a global loser (winner) in all 103 sorts.

Panel B. First sort by market capitalization

Quintile Average market capitalization Global loser in 103 sorts Global winner in 103 sorts

1 Lowest 78 1
2 2nd lowest 2 14
3 Medium 0 19
4 2nd highest 1 24
5 Highest 22 45
Total 103 103

Note: Starting from December 1962, we sort all stocks into quintiles by their market capitalization. We do this every 6 months, which results in a total of 103 sorts
from December 1962 to December 2013. If the average previous 6-month return of a group is the lowest (highest) among the five quintiles in a sort, we call it
global loser (winner) in that sort. For each quintile we calculate the number of sorts of that group being a global loser (winner) in all 103 sorts.

2004; Jegadeesh and Titman, 2001). Although the Jegadeesh and Titman (1993) approach is appealing because it skirts issues as-
sociated with overlapping returns (Moskowitz and Grinblatt, 1999), it uses monthly rebalancing. Thus, it does not track the orig-
inal winner–loser portfolio throughout a certain “defined” holding period. A more intuitive approach is taken by Carhart (1997)
who tracks the stock performance through the holding period.
For our empirical analysis, we use Jegadeesh and Titman's (1993) approach to form our winner–loser portfolios. We do two
double sorts: We sort first by returns and then by characteristic. We also sort in the reverse sorting order in order to examine
whether the sorting order makes a difference. To measure our post-portfolio formation performance, we use the continuously
compounded cumulative return. We rationalize this measure by noting that typical investors seek the highest possible overall re-
turn after adjusting for their risk preferences. We use 3-, 6-, 9- and 12-month previous returns to sort stocks and we calculate the
cumulative 3-, 6-, 9-, 12-, 24-, 36-, 48- and 60-month future returns. Our initial starting point is January 1, 1963, allowing us to
use 1962 as the initial basis for our portfolio formation.5 For our institutional trading measure, we sum the value of shares newly
bought by institutional investors in that quarter provided they already held shares in the previous quarter for the next 3, 6, 9, 12,
24, 36, 48 and 60 months after portfolio formation.

4. Results and discussion

4.1. Nature of sorting portfolios

Recall that the double-sort approach involves either (1) sorting firms by firm characteristics into groups and then sorting firms
within each group by returns or (2) sorting firms by returns to form portfolios and then sorting firms within each group by firm
characteristic. Before we detail the sort strategies, we need to define not only winner and loser portfolios and but also price mo-
mentum and reversal. We continue to use the previous 6-month return and future 6-month return approach to illustrate our
method. First, we use the previous 6-month return to sort all stocks into quintiles. Within these quintiles, the quintile that has
the highest (lowest) average return is called a global winner (loser) portfolio. If this global winner (loser) portfolio continues
to be a global winner (loser) portfolio as determined by the average future 6-month returns, we label this phenomenon “price
momentum.” If, instead, the global winner (loser) portfolio does not continue to be the global winner (loser) portfolio as deter-
mined by the average future 6-month return, we call this “price reversal.”
Panel A of Table 2 provides a summary of the results from first sorting by returns and Panel B provides similar data associated
with first sorting by size (market capitalization).6 In each panel we present the quintiles in ascending order. Turning first to Panel
A, as expected all of the sorts correctly place the global losers and winners in Quintiles 1 and 5, respectively. This, however, is not

5
To illustrate our return calculations, assume that we first sort stocks according to their returns in the previous six months and we want to determine their return in
the next six months. If the future return calculation begins on January 1, 1963, the portfolios are formed on December 31, 1962 based on cumulative return from July 1,
1962 to December 31, 1962. The next 6-month cumulative return is the return from January 1, 1963 to June 30, 1963. The portfolio is then rebalanced on June 30 using
the previous cumulative return from previous January 1, 1963 to June 30, 1963. This process continues until the data's end.
6
We also use implied volatility, volume and momentum strength (as defined by Bandarchuk and Hilscher, 2013) as the first sort for firm characteristic with the sec-
ond sort being returns. The results (not reported) are similar and further confirm that this kind of sorting does not provide global winner and loser portfolios.
72 G. Geoffrey Booth et al. / Journal of Empirical Finance 35 (2016) 68–77

Table 3
Loser/Big–Loser/Small strategy results.

Length of sort periods Long–short size ratio Number of months in the future

3 6 12 24 36 48 60

Mean of difference of cumulative returns (t-test)

3 318.9 −0.0697 −0.1523 −0.3929 −0.9001 −0.9918 −1.4935 −1.8336
t-Stat (17.53) (−6.41) (−6.21) (−5.72) (−3.58) (−3.68) (−3.82) (−3.57)
6 301.2 −0.0759 −0.1541 −0.4018 −0.9193 −1.0269 −1.4371 −1.5646
t-Stat (17.36) (−6.95) (−6.27) (−5.97) (−3.84) (−3.81) (−3.81) (−3.65)
9 282.7 −0.0777 −0.1659 −0.4011 −0.9229 −1.0915 −1.3621 −1.5951
t-Stat (17.56) (−7.06) (−6.62) (−5.79) (−3.70) (−3.82) (−3.65) (−3.41)
12 278.9 −0.0821 −0.1717 −0.4071 −0.9235 −1.0217 −1.4671 −1.5703
t-Stat (18.52) (−7.33) (−6.87) (−5.68) (−3.81) (−3.64) (−3.78) (−3.44)

Median of difference of cumulative returns (signed rank test)

3 242.5 −0.0362 −0.1144 −0.2713 −0.3541 −0.5087 −1.2349 −1.5461
z-Stat (12.41) (−5.32) (−5.56) (−5.49) (−3.94) (−3.05) (−2.90) (−2.60)
6 232.1 −0.0471 −0.1211 −0.2979 −0.5034 −0.5529 −1.25 −1.6447
z-Stat (12.41) (−5.85) (−5.45) (−5.45) (−3.94) (−3.34) (−2.90) (−2.50)
9 210.2 −0.0592 −0.1239 −0.2808 −0.3799 −0.6607 −1.1234 −1.2483
z-Stat (12.41) (−6.20) (−5.81) (−5.52) (−3.94) (−3.20) (−2.98) (−2.60)
12 205.9 −0.0565 −0.1238 −0.2884 −0.4923 −0.6507 −1.293 −1.3157
z-Stat (12.41) (−6.51) (−6.07) (−5.44) (−3.97) (−3.20) (−2.98) (−2.70)

Mean of difference of sum of institutional trading

3 318.9 19,441.9 7821.3 2851.9 2874.0 2459.5 1390.4 1628.6
t-Stat (17.53) (2.24) (2.69) (7.34) (6.76) (2.65) (8.03) (2.14)
6 301.2 8990.4 4199.3 4965.6 2810.6 1567.6 1855.2 1063.9
t-Stat (17.36) (3.28) (6.79) (2.68) (6.37) (5.89) (4.13) (3.82)
9 282.7 11,739.9 6724.9 4354.4 3501.3 1611.3 2569.1 951.5
t-Stat (17.56) (3.69) (4.25) (4.96) (3.61) (5.30) (3.24) (3.58)
12 278.9 8564.8 9567.0 3834.0 4297.3 2822.3 1685.8 1154.9
t-Stat (18.52) (4.90) (1.86) (5.65) (4.14) (3.21) (3.35) (3.08)

Notes: We sort in descending order our sample stocks by previous 3-, 6-, 9- or 12-month returns using the Jegadeesh and Titman (1993) method into quintiles.
Loser stocks are those in the lowest return quintile. We then sort in descending order the Loser stocks into quintiles using market capitalization. Big (Small) stocks
are those in the highest (lowest) size quintile. Loser/Big (Loser/Small) is the group of stocks with lowest (lowest) return and biggest (smallest) market capitalization
among the Loser stocks. We then create a long short portfolio using these two stock groups and report below the results for cumulative return (using both t-test
and non-parametric signed rank test), and institutional trades from three to 60 months after portfolio formation. Selected months are presented below. For the
Long–Short Size Ratio, the t-statistics (z-statistics) of testing whether the mean (median) of the ratio equals one is equivalent to testing if the market capitalization
of the long portfolio is equal to the short portfolio.

the case when the first sort is based on market capitalization. As shown in Panel B, only 78 global losers fall into Quintile 1 and 45
global winners are in Quintile 5. If no quintile can be declared a winner or loser by average previous 6-month return in all 103
sorts, discussing whether it is a price momentum or reversal by further looking at its average future 6-month return is not very
meaningful because any result derived from this comparison is not directly related to price momentum-reversal analysis. Hence,
the results in Table 2 suggest that momentum-reversal analysis requires a first sort by returns and a second sort, if required, by
firm-characteristic sort and not the reverse.

4.2. Comparison of momentum and the small-firm effect

We refer to the quintiles containing the largest and the smallest firms as Big and Small, respectively. We create two long-
short portfolios, i.e., Loser/Big–Loser/Small and Winner/Big–Winner/Small. We present the results associated with each of these
investment strategies in Tables 3 and 4. Because the return classification categories are the same in each table, we can examine
the impact of size on momentum trading on each return segment. Nevertheless, it is possible that the Winner–Loser portfolio
may in some circumstances embed the momentum and the firm size effects. Thus, we differentiate their relative importance
and interactions by creating four additional strategic portfolios: (1) long the Winner/Small portfolio and short the Loser/Small
portfolio (Table 5), (2) long the Winner/Big portfolio and short the Loser/Small portfolio (Table 6), (3) long the Winner/Small
portfolio and short the Loser/Big portfolio (Table 7), and (4) long the Winner/Big portfolio and short the Loser/Big portfolio
(Table 8).

4.2.1. Momentum and the small-firm effect

Table 3 reports the return results of buying the Loser/Big portfolio and selling the Loser/Small portfolio (i.e., Loser/Big–Loser/
Small strategy). Our results in the first panel show that the cumulative mean returns of the portfolio, which are calculated
using continuous compounding, are all negative and statistically significant for all of the holding periods following portfolio
 G. Geoffrey Booth et al. / Journal of Empirical Finance 35 (2016) 68–77 73

Table 4
Winner/Big–Winner/Small strategy results.

Length of sort periods Long–short size ratio Number of months in the future

3 6 12 24 36 48 60

Mean of difference of cumulative return (t-test)

3 268.1 −0.0122 −0.047 −0.1158 −0.2756 −0.5128 −0.4729 −0.5198
t-Stat (19.40) (−1.61) (−2.91) (−2.76) (−2.34) (−2.30) (−1.98) (−2.39)
6 250.5 −0.0148 −0.0373 −0.0905 −0.1981 −0.3517 −0.446 −0.4489
t-Stat (19.15) (−2.25) (−2.44) (−2.59) (−2.10) (−2.04) (−2.19) (−2.19)
9 239.4 −0.0125 −0.0387 −0.0867 −0.2133 −0.3563 −0.4499 −0.3155
t-Stat (18.76) (−2.02) (−2.73) (−2.54) (−2.03) (−2.08) (−2.29) (−1.94)
12 235.4 −0.0145 −0.0379 −0.0943 −0.2557 −0.4512 −0.4857 −0.4441
t-Stat (18.85) (−2.40) (−2.74) (−2.81) (−2.06) (−2.21) (−2.85) (−2.02)

Median of difference of cumulative return (signed rank test)

3 220.9 0 −0.0127 −0.0654 −0.0247 −0.3262 −0.3958 −0.2697
z-Stat (12.41) (−0.45) (−2.15) (−2.39) (−1.68) (−2.15) (−1.80) (−2.09)
6 209.0 −0.0044 −0.0186 −0.0359 −0.047 −0.0442 −0.3973 −0.2712
z-Stat (12.41) (−1.46) (−1.62) (−1.94) (−1.17) (−1.44) (−1.88) (−1.99)
9 197.1 −0.0073 −0.0309 −0.0524 −0.0195 −0.1728 −0.4773 −0.1732
z-Stat (12.41) (−1.46) (−2.23) (−2.07) (−1.49) (−1.73) (−1.96) (−1.48)
12 195.2 −0.0096 −0.0265 −0.0678 −0.0853 −0.1914 −0.5178 −0.0841
z-Stat (12.41) (−1.69) (−2.14) (−2.47) (−1.74) (−2.15) (−2.27) (−1.27)

Mean of difference of sum of institutional trading

3 268.1 3841.0 1920.0 2386.8 1335.6 729.9 606.0 598.6
t-Stat (19.40) (6.89) (7.52) (4.37) (5.95) (8.64) (7.58) (3.86)
6 250.5 3092.2 2003.5 1762.5 1021.2 683.7 545.8 528.0
t-Stat (19.15) (5.18) (6.02) (6.46) (9.06) (6.83) (6.31) (4.44)
9 239.4 2255.2 1566.7 1480.4 1010.4 597.6 493.2 523.8
t-Stat (18.76) (7.32) (8.98) (4.04) (7.70) (7.57) (7.44) (4.61)
12 235.4 1906.1 1476.9 1291.9 1083.7 712.8 545.9 606.8
t-Stat (18.85) (10.70) (9.82) (7.88) (9.14) (6.79) (7.46) (3.69)

Notes: We sort in descending order our sample stocks by previous 3-, 6-, 9- or 12-month returns using the Jegadeesh and Titman (1993) method into quintiles.
Winner stocks are those in the highest return quintile. We then sort in descending order the Winner stocks into quintiles using market capitalization. Big (Small)
stocks are those in the highest (lowest) size quintile. Winner/Big (Winner/Small) is the group of stocks with highest return and biggest (smallest) market capital-
ization among the Winner stocks. We then create a long short portfolio using these two stock groups and report below the results for cumulative return (using
both t-test and non-parametric signed rank test), and institutional trades from three to 60 months after portfolio formation. Selected months are presented
below. For Long–Short Size Ratio, the t-statistics (z-statistics) of testing whether the mean (median) of the ratio equals one is equivalent to testing if the market
capitalization of the long portfolio is equal to the short portfolio.

formation. This pervasive negative pattern suggests that shorting the smallest firms in this strategic portfolio will incur losses in
the short and long term. Of course, the reverse strategy (i.e., Loser/Small–Loser/Big) will result in positive returns for the portfolio.
The second column of Table 3 shows the ratio of the market capitalization of the long portfolio to the short portfolio (hereafter
referred to as the Long–Short Size Ratio), enabling us to measure the relative size of the two portfolios.7 The mean returns test
results indicate that in every case the Long–Short Size Ratio is economically and statistically greater than one, indicating that
the size of firms in the long portfolio (Loser/Big) is, on average, much larger in terms of size than the short portfolio (Loser/
Small). These results not only suggest that the small-firm effect may dominate the momentum effect, but also reinforce the im-
portance of the small-firm effect as shown, e.g., by Banz (1981) and Fama and French (1992).
The second panel in Table 3 presents the median returns of the winner and loser portfolios that are equal. The median results
are negative and mostly significant, according to the signed rank test (z-test), and are generally consistent with the t-tests in first
panel. In the second column of this panel, the Long–Short Size Ratio is based on the median sizes of the winner–loser portfolios
rather than the mean sizes that are used in the first panel. The z-statistic indicates again that the capitalization of the long port-
folio is much bigger than the short portfolio based on median returns.8
Prior studies have demonstrated that either institutional investors are either better informed or their trades are motivated by
previous returns (i.e., momentum trading). We investigate the impact of this phenomenon on our results by examining how in-
stitutional investors who have investments in the long and short positions balance their trading positions. To this end, we obtain a
ratio of institutional trades in the long position to that of the short position. We compute the institutional trade ratio in the per-
formance month from that of the month of portfolio formation and examine the relative trading position by institutional investors

7
For the ratio of Long–Short Size Ratio, the t-statistics (z-statistics) from testing whether the mean (median) of the ratio equals one is equivalent to testing if the
market capitalizations of the long and short portfolio are equal. If the ratio is greater (smaller) than one, the long (short) portfolio's market capitalization is larger than
that of the short (long) portfolio.
8
In the rest of the panels containing the “median of difference of cumulative returns” in Tables 4–8, we similarly compute the ratio of the Long–Short Size Ratio using
on median returns.
74 G. Geoffrey Booth et al. / Journal of Empirical Finance 35 (2016) 68–77

Table 5
Winner/Small–Loser/Small strategy results.

Length of sort periods Long–short size ratio Number of months in the future

3 6 12 24 36 48 60

Mean of difference of cumulative return (t-test)

3 2.6 −0.0458 −0.0743 −0.2078 −0.6454 −0.4726 −1.0799 −1.3003
t-Stat (15.49) (−5.67) (−3.51) (−3.98) (−3.51) (−2.32) (−3.43) (−3.12)
6 3.2 −0.0428 −0.0712 −0.2434 −0.7447 −0.5869 −1.1795 −1.0093
t-Stat (18.12) (−4.34) (−3.03) (−3.65) (−3.29) (−2.91) (−2.87) (−2.43)
9 3.7 −0.0432 −0.075 −0.2557 −0.7604 −0.6862 −1.101 −1.2854
t-Stat (20.32) (−4.16) (−3.01) (−3.61) (−3.37) (−3.48) (−2.66) (−2.52)
12 4.2 −0.0395 −0.0793 −0.2525 −0.7141 −0.4961 −1.0457 −1.0341
t-Stat (22.31) (−3.75) (−3.30) (−3.47) (−3.64) (−2.75) (−2.54) (−2.44)

Median of difference of cumulative return (signed rank test)

3 2.4 −0.0287 −0.027 −0.1259 −0.322 −0.0691 −0.9414 −0.9828
z-Stat (11.98) (−5.05) (−3.13) (−4.12) (−3.97) (−1.78) (−2.82) (−2.50)
6 3.0 −0.018 −0.0163 −0.0906 −0.3451 −0.4436 −1.0893 −0.726
z-Stat (12.29) (−3.72) (−2.16) (−3.67) (−3.51) (−2.53) (−2.12) (−2.09)
9 3.5 −0.0156 −0.0099 −0.0942 −0.2419 −0.4148 −0.6235 −0.6261
z-Stat (12.34) (−3.05) (−1.80) (−3.57) (−3.83) (−3.10) (−2.27) (−2.60)
12 3.8 −0.0121 −0.0235 −0.1147 −0.3133 −0.3378 −0.4544 −0.6328
z-Stat (12.37) (−2.78) (−2.33) (−3.58) (−3.89) (−2.72) (−2.51) (−2.40)

Mean of difference of sum of institutional trading

3 2.6 35.1 21.2 6.1 14.7 17.0 11.5 12.2
t-Stat (15.49) (1.6) (2.79) (4.01) (4.99) (3.86) (3.50) (3.48)
6 3.2 42.1 16.6 10.5 19.3 15.5 18.3 15.1
t-Stat (18.12) (1.92) (4.11) (4.45) (4.45) (5.65) (4.32) (3.91)
9 3.7 44.2 31.1 23.6 26.3 23.3 23.3 14.5
t-Stat (20.32) (3.77) (3.71) (4.55) (2.95) (4.00) (3.26) (3.52)
12 3.2 46.5 49.7 25.9 20.9 21.1 14.0 13.4
t-Stat (22.31) (4.33) (1.87) (4.32) (4.19) (4.12) (3.20) (4.08)

Notes: We sort in descending order our sample stocks by previous 3-, 6-, 9- or 12-month returns using the Jegadeesh and Titman (1993) method into quintiles.
Winner (loser) stocks are those in the highest (lowest) return quintile. We then sort in descending order the Winner (loser) stocks into quintiles using market cap-
italization. Small stocks are those in the lowest size quintile. Winner/Small (Loser/Small) is the group of stocks with highest (lowest) return and smallest market
capitalization among the Winner (Loser) stocks. We then create a long short portfolio using these two stock groups and report below the results for cumulative
return (using both t-test and non-parametric signed rank test), and institutional trades from three to 60 months after portfolio formation. Selected months are
presented below. For the Long–Short Size Ratio, the t-statistics (z-statistics) of testing whether the mean (median) of the ratio equals one is equivalent to testing
if the market capitalization of the long portfolio is equal to the short portfolio.

(i.e., the investment amount of institutional investors in the long position to the short position less one) are reported in the third
panel of Table 3 (under “institutional” trades).9 These ratios are quite large and positive, suggesting that institutional investors
invest largely in large firms and do not necessarily follow momentum trading behavior.
Table 4 presents the performance results of the Winner/Big–Winner/Small investment strategy. Again, the results demonstrate
the small-firm effect the in short portfolio dominates the returns of the long position. Over various holding periods, the cumula-
tive returns of this long–short portfolio are negative and significant. Trades of institutional investors in the long position with larg-
er firms are much larger than the small firms in the short portfolio.

4.2.2. “Net” momentum and the small-firm effect

Table 5 presents the performance of Winner/Small–Loser/Small strategy. This table contains the results of a strategy minimizes
the impact of large firms on momentum trading by focusing only on small capitalization stocks. The size of the winner (long)
portfolio is on average slightly larger than the loser (short) portfolio. This consistent result indicates that the positive price mo-
mentum effect is overwhelmed by the small-firm effect of the loser portfolio (in the short portfolio). It also implies that a reverse
trading strategy yields significant positive returns. The ratio of the long position relative to the short position by institutional in-
vestors is always positive and significant, suggesting that institutional investors are investing in larger firms.
Table 6 reports the returns of Winner/Big–Loser/Small strategy. This table contains the results of a strategy that focuses on re-
turn and size opposites and, thus, reflects the combined impact of the two factors. Again, we find negative and significant returns
for the performance months. These results are consistent and significant in the short and long term, implying that the reverse
strategy yields consistently positive and significant results. The ratio of trades by institutional investors in the long and short po-
sition is positive and significant, indicating that trading activity of institutional investors in large stocks.

9
In Table 3 and other remaining tables, the institutional investor variable is computed using data from 1980 onward reported in Table 1.
 G. Geoffrey Booth et al. / Journal of Empirical Finance 35 (2016) 68–77 75

Table 6
Winner/Big–Loser/Small strategy results.

Length of sort periods Long–short size ratio Number of months in

the future

3 6 12 24 36 48 60

Mean of difference of cumulative return (t-test)

3 717.5 −0.058 −0.1213 −0.3236 −0.921 −0.9854 −1.5528 −1.8201
t-Stat (15.26) (−4.69) (−4.08) (−4.09) (−3.31) (−3.28) (−3.08) (−3.35)
6 863.8 −0.0575 −0.1085 −0.3339 −0.9428 −0.9386 −1.6255 −1.4581
t-Stat (14.05) (−4.36) (−3.55) (−3.85) (−3.19) (−3.23) (−3.14) (−3.39)
9 986.5 −0.0557 −0.1136 −0.3423 −0.9736 −1.0425 −1.5509 −1.6009
t-Stat (13.76) (−4.08) (−3.58) (−3.78) (−3.17) (−3.35) (−2.85) (−3.05)
12 1096.3 −0.054 −0.1172 −0.3468 −0.9698 −0.9473 −1.5314 −1.4781
t-Stat (14.44) (−3.94) (−3.78) (−3.87) (−3.37) (−3.22) (−2.86) (−3.08)

Median of difference of cumulative return (signed rank test)

3 546.2 −0.0213 −0.0674 −0.1616 −0.5442 −0.7201 −1.3727 −1.6059
z-Stat (12.41) (−3.53) (−3.41) (−3.81) (−3.38) (−2.67) (−2.35) (−2.70)
6 669.9 −0.021 −0.0367 −0.1666 −0.3563 −0.4813 −1.1285 −1.1459
z-Stat (12.41) (−3.39) (−2.54) (−3.76) (−3.30) (−2.58) (−2.59) (−2.60)
9 703.2 −0.0241 −0.0341 −0.1532 −0.2728 −0.6689 −0.9609 −1.0645
z-Stat (12.41) (−2.81) (−2.61) (−3.67) (−3.13) (−2.86) (−2.59) (−2.70)
12 775.3 −0.0289 −0.0528 −0.1354 −0.3319 −0.5049 −0.7277 −1.1712
z-Stat (12.41) (−2.72) (−2.79) (−3.85) (−3.62) (−2.96) (−2.67) (−2.60)

Mean of difference of sum of institutional trading

3 717.5 34,129.3 29,611.7 9413.1 14,677.7 13,098.0 8257.6 6974.4
t-Stat (15.26) (3.87) (3.55) (4.95) (5.39) (3.81) (2.89) (4.21)
6 863.8 35,100.1 17,001.2 14,000.2 17,482.2 12,536.0 13,210.0 8997.3
t-Stat (14.05) (4.56) (6.86) (5.02) (5.39) (3.68) (2.50) (2.58)
9 986.5 61,600.5 43,273.0 21,394.8 18,793.2 14,462.1 13,108.7 8418.2
t-Stat (13.76) (3.19) (2.24) (5.29) (5.19) (3.66) (2.44) (2.95)
12 1096.3 62,872.5 56,089.5 24,451.2 19,337.5 17,260.5 9732.6 8216.9
t-Stat (14.44) (4.11) (1.86) (5.15) (5.11) (3.63) (2.45) (3.75)

Notes: We sort in descending order our sample stocks by previous 3-, 6-, 9- or 12-month returns using the Jegadeesh and Titman (1993) method into quintiles.
Winner (Loser) stocks are those in the highest (lowest) return quintile. We then sort in descending order the Winner (Loser) stocks into quintiles using market
capitalization. Small stocks are those in the lowest size quintile. Winner/Big (Loser/Small) is the group of stocks with highest (lowest) return and smallest market
capitalization among the Winner (Loser) stocks. We then create a long short portfolio using these two stock groups and report below the results for cumulative
return (using both t-test and non-parametric signed rank test), and institutional trades from three to 60 months after portfolio formation. Selected months are
presented below. For the Long–Short Size Ratio, the t-statistics (z-statistics) of testing whether the mean (median) of the ratio equals one is equivalent to testing
if the market capitalization of the long portfolio is equal to the short portfolio.

Table 7 shows the returns of the Winner/Small–Loser/Big strategy. The analysis also focuses on return and size opposites. In this
scenario, the size of the winner firms (either based on the mean return or medium return) is much smaller than that of the loser
firms as indicated in the second column and the t-tests. The ratio of the Long–Short Size Ratio is close to zero (due to rounding,
such as 0.002) because the long portfolio is much smaller than the short portfolio (either in mean value or medium value). All
cumulative returns are positive and significant, reflecting the positive effect of momentum factor and the positive small-firm effect
of the winner portfolio. An analysis of institutional trades in the long and short positions suggests that the institutional investors
invest relatively more in the short position with larger firm size. In this case, the institutional investors earned significant positive
returns.
Finally, Table 8 presents the returns of the Winner/Big–Loser/Big strategy. This strategy consists of relatively large firms, al-
though of different sizes, in order to minimize the effect of small firm on momentum profits. Returns are positive and significant
within one year. The absence of the small-firm effect in this strategic portfolio explains reasonably well the return behaviors be-
cause of the positive initial price momentum effect. Once again the ratios of the long and short positions of institutional investors
are positive, confirming our previous observation that institutional investors tend to invest in large firms.

5. Conclusions

Our study uses all the U.S. stock returns from four exchanges (NYSE, AMEX, NASDAQ and NYSE Arca) from January 1962
through December 2013 to investigate the momentum pattern of the U.S. stocks. In addition replicating and extending the results
of past studies that show a positive short-term price momentum effect but long-term price reversals, our analysis provides several
noteworthy results.
We do not invoke behavioral models to explain the momentum pattern. Instead, we use several long–short portfolios to show
that the momentum pattern is largely attributable to the interaction of the price momentum and the market capitalization and
other size related effects. For example, our results using strategic portfolios that involve a combination of long and short portfolios
76 G. Geoffrey Booth et al. / Journal of Empirical Finance 35 (2016) 68–77

Table 7
Winner/Small–Loser/Big strategy results.

Length of sort Long–short size Number of months in the future

periods ratio
3 6 12 24 36 48 60

Mean of difference of cumulative return (t-test)

3 0.00 0.0239 0.078 0.1852 0.2547 0.5192 0.4136 0.5333
t-Stat (−676.2) (2.64) (4.60) (3.97) (1.93) (2.37) (3.09) (1.91)
6 0.00 0.0331 0.0829 0.1584 0.1746 0.44 0.2576 0.5553
t-Stat (−650.6) (3.65) (4.85) (4.17) (1.67) (2.34) (1.69) (1.68)
9 0.00 0.0346 0.091 0.1454 0.1626 0.4053 0.2611 0.3098
t-Stat (−477.0) (3.85) (5.51) (3.77) (1.44) (2.52) (2.34) (1.16)
12 0.00 0.0426 0.0925 0.1547 0.2094 0.5256 0.4214 0.5362
t-Stat (−432.2) (4.62) (5.82) (3.71) (1.55) (2.47) (3.19) (2.11)

Median of difference of cumulative return (signed rank test)

3 0.00 0.0255 0.065 0.1495 0.2243 0.3359 0.3252 0.3235
z-Stat (−12.41) (3.01) (4.45) (4.32) (2.35) (2.63) (2.59) (1.89)
6 0.00 0.0381 0.0709 0.2105 0.2016 0.2793 0.0311 0.5128
z-Stat (−12.41) (4.39) (4.64) (4.18) (2.30) (2.20) (1.18) (1.58)
9 0.00 0.0454 0.0886 0.1562 0.2213 0.3389 0.2252 0.3249
z-Stat (−12.41) (4.79) (5.47) (4.24) (2.25) (2.44) (2.04) (1.07)
12 0.00 0.0432 0.0861 0.1389 0.2126 0.3339 0.4594 0.6953
z-Stat (−12.41) (5.61) (5.56) (4.71) (2.62) (2.58) (2.51) (1.89)

Mean of difference of sum of institutional trading

3 0.00 −0.9973 −0.9959 −0.9967 −0.994 −0.991 −0.9914 −0.9888
t-Stat (−676.2) (−2191) (−1578) (−1696) (−1260) (−659.4) (−583.5) (−501.8)
6 0.00 (−0.9947) (−0.9933) (−0.9954) (−0.99) (−0.9832) (−0.9859) (−0.9833)
t-Stat (−650.6) (−949.1) (−724.0) (−1211) (−488.8) (−160.1) (−246.8) (−303.6)
9 0.00 (−0.9939) (−0.9919) (−0.9929) (−0.9876) (−0.9821) (−0.9826) (−0.9812)
t-Stat (−477.0) (−1215) (−782.2) (−1007) (−404.1) (−216.8) (−166.3) (−255.1)
12 0.00 (−0.9932) (−0.9925) (−0.9911) (−0.992) (−0.9894) (−0.9846) (−0.9849)
t-Stat (−432.2) (−1213) (−912.7) (−692.4) (−776.1) (−487.9) (−172.0) (−300.7)

Notes: We sort in descending order our sample stocks by previous 3-, 6-, 9- or 12-month returns using the Jegadeesh and Titman (1993) method into quintiles.
Winner (Loser) stocks are those in the highest (lowest) return quintile. We then sort in descending order the Winner (Loser) stocks into quintiles using market
capitalization. Big (Small) stocks are those in the highest (lowest) size quintile. Winner/Small (Loser/Big) is the group of stocks with highest (lowest) return and
smallest (biggest) market capitalization among the Winner (Loser) stocks. We then create a long short portfolio using these two stock groups and report below
the results for cumulative return (using both t-test and non-parametric signed rank test), and institutional trades from three to 60 months after portfolio forma-
tion. Selected months are presented below. For the Long–Short Size Ratio, the t-statistics (z-statistics) of testing whether the mean (median) of the ratio equals one
is equivalent to testing if the market capitalization of the long portfolio is equal to the short portfolio.

demonstrate that the size effect appears to dominate the price momentum effect in their performance. To illustrate, regardless of
the different winner–loser portfolio category used, when the size category is the smallest in the short portfolio, the cumulative
returns of these portfolio (after portfolio formation) are consistently negative and significant, demonstrating the dominant
small-firm effect. Further, when the firm size in the long portfolio is smallest, the overall strategic return is positive with no neg-
ative price reversals. In addition, in a strategic portfolio that longs the stocks of large firms that have experienced superior returns
and shorts the stocks of small firms characterized by poor past performance, the long portfolio continues to underperform the
short portfolio, showing significant short- and long-term price reversals. This result differs from previous literature but shows sup-
port for short-term momentum and long-term price reversals. In sum, we show small capitalization stocks outperform the large
capitalization stocks.
Moreover, we demonstrate that institutional investors tend to invest in large firms, regardless of various winner–loser portfolio
combinations. This finding is not consistent with the results of many studies that suggest the momentum trading behavior of in-
stitutional investors. Our results, however, do confirm the observation that institutional investors tend to invest in large firms. We
contribute to the momentum literature by showing that the small-firm effect dominates price momentum in the long run and
explaining the so-called momentum-price reversal anomaly. Because we rely on the notion that the small-firm effect is a proxy
for risk, our explanation is rooted in the traditional risk-return framework. Thus, behavioral reasons for this so-called anomaly,
although intriguing, are not needed, particularly if Occam's Razor, which urges the acceptance of the simplest explanation, is
invoked.

Acknowledgments

We thank Richard Baillie (Editor) and anonymous reviewer for their insightful comments and suggestions. We also thank
Jot Yau and seminar participants at the University of Missouri—St. Louis, University of Nottingham Ningbo, National Kaohsiung
First University of Science and Technology, Fengchia University, and Harbin Institute of Technology for helpful discussions
and input.
 G. Geoffrey Booth et al. / Journal of Empirical Finance 35 (2016) 68–77 77

Table 8
Winner/Big–Loser/Big strategy results.

Length of sort periods Long–short size ratio Number of months in the future

3 6 12 24 36 48 60

Mean of difference of cumulative return (t-test)

3 4.0 0.0117 0.031 0.0693 −0.0209 0.0064 −0.0592 0.0135
t-Stat (9.01) (1.67) (2.33) (2.04) (−0.23) (0.06) (−0.32) (0.07)
6 4.9 0.0183 0.0456 0.0679 −0.0236 0.0883 −0.1884 0.1065
t-Stat (9.77) (2.31) (3.11) (1.93) (−0.24) (0.77) (−1) (0.51)
9 6.2 0.0221 0.0523 0.0587 −0.0507 0.0489 −0.1889 −0.0057
t-Stat (9.56) (2.58) (3.24) 1.63 (−0.49) (0.43) (−0.86) (−0.03)
12 7.0 0.0281 0.0545 0.0604 −0.0463 0.0744 −0.0643 0.0922
t-Stat (9.80) (3.20) (3.54) (1.71) (−0.48) (0.62) (−0.32) (0.44)

Median of difference of cumulative return (signed rank test)

3 2.1 0.0159 0.0362 0.0925 0.0385 0.005 −0.1618 −0.0027
z-Stat (8.86) (2.66) (2.99) (2.99) (0.55) (0.31) (−0.55) (0.05)
6 3.1 0.0297 0.0465 0.0816 0.11 0.0716 0.0135 −0.053
z-Stat (9.76) (4.50) (3.81) (2.85) (0.63) (1.3) (−0.55) (−0.15)
9 3.3 0.032 0.0602 0.1006 0.1315 0.0842 −0.1703 −0.1066
z-Stat (10.49) (4.90) (3.96) (2.61) (0.36) (0.83) (−0.55) (−0.36)
12 3.8 0.0331 0.0647 0.104 0.1488 0.0876 −0.0803 −0.0862
z-Stat (10.86) (5.37) (4.04) (2.92) (0.44) (0.69) (−0.08) (0.05)

Mean of difference of sum of institutional trading

3 4.0 2.67 3.78 3.02 5.14 6.75 4.53 6.59
t-Stat (9.01) (8.17) (6.50) (5.22) (5.34) (4.09) (3.15) (3.08)
6 4.9 4.52 5.22 4.75 8.16 9.52 7.33 7.53
t-Stat (9.77) (8.51) (5.50) (4.11) (4.56) (3.61) (2.70) (4.18)
9 6.2 6.76 8.25 6.26 10.36 10.46 8.74 9.59
t-Stat (9.56) (8.11) (6.14) (4.53) (4.45) (3.98) (2.35) (3.76)
12 7.0 8.10 8.33 8.17 7.64 6.51 8.03 7.51
t-Stat (9.80) (8.00) (5.66) (5.48) (3.94) (3.55) (2.27) (2.96)

Notes: We sort in descending order our sample stocks by previous 3-, 6-, 9- or 12-month returns using the Jegadeesh and Titman (1993) method into quintiles.
Winner (Loser) stocks are those in the highest (lowest) return quintile. We then sort in descending order the Winner (Loser) stocks into quintiles using market
capitalization. Big stocks are those in the highest size quintile. Winner/Big (Loser/Big) is the group of stocks with highest (lowest) return and biggest (biggest) mar-
ket capitalization among the Winner (Loser) stocks. We then create a long short portfolio using these two stock groups and report below the results for cumulative
return (using both t-test and non-parametric signed rank test), and institutional trades from three to 60 months after portfolio formation. Selected months are
presented below. For the Long–Short Size Ratio, the t-statistics (z-statistics) of testing whether the mean (median) of the ratio equals one is equivalent to testing
if the market capitalization of the long portfolio is equal to the short portfolio.

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