Two Essays in Asset Pricing

Vo, Hong
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[Honolulu] : [University of Hawaii at Manoa], [December 2015]
This research examines two matters in asset pricing in two essays. The first essay investigates the impact of firm size on return reversals using weekly returns from January 1980 to December 2013. Return reversals are greater for the largest size quintile than for the smallest size quintile in the first half of the sample period. However, the firm size effect on return reversals disappears in the second half sample. Return reversals during the up market period are significantly stronger than during the down market period for all stocks. The reversal difference between the largest and smallest size quintiles is also highly significant in the up market. Further analysis shows that a high institutional demand, mainly from the small stakeholders, for large-firm stocks results in high demand for immediacy as well as strong return reversals for these stocks in the first half sample. After institutions shifted their preferences to stocks of smaller firms since the mid-1990s, return reversals for large-firm stocks became insignificantly different from small-firm stocks in the second half of the sample period. The second essay explores the geographic dimension of the momentum effect. Using the data of the U.S. firms over a 34-year period from 1980 to 2013, the study shows that stocks in urban areas have stronger momentum effect than those in nonurban/rural areas. The result remains robust after controlling for stock and firm characteristics that are documented to affect momentum in previous studies together with time-varying state characteristics. Further analysis shows that geographic momentum concentrates in up markets. The geographic momentum in this study can be explained by two causes. First, the overreaction of risk-averse individual investors to bad news is stronger in nonurban/rural areas than in urban areas. The other is that some types of institutional investors trade on urban winners more strongly than winners in other areas.
Ph.D. University of Hawaii at Manoa 2015.
Includes bibliographical references.
Short-term Reversals, Momentum
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