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Investor Myopia and the Momentum Premium across International Equity Markets

Published online by Cambridge University Press:  02 October 2018

Paul Docherty  and
Gareth Hurst
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Abstract

Myopic investors focus on short-run price changes rather than long-term fundamental value, resulting in an overweighting of public information and a slow diffusion of fundamental news. Such processing of information can produce price drifts similar to those seen in behavioral models of momentum. We explore the impact of myopia over an international sample, finding that momentum is stronger in more myopic countries, and this relationship is magnified where the proportion of funds under delegated management is high. We therefore argue that investor myopia, which arises due to agency issues in delegated funds management, is an important determinant of momentum.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 53 , Issue 6 , December 2018 , pp. 2465 - 2490
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

The comments from Pedro Barroso (the referee), Peter Brooke, Stephen Brown, Jennifer Conrad (the editor), Steve Easton, Robert Faff, Phil Gray, Adrian Melia, and Tom Smith have been greatly appreciated. This paper has also benefited from the comments of seminar participants at the 2014 Australasian Finance and Banking Conference, the 2017 Vietnam International Conference in Finance, Monash University, and the University of Newcastle. Research funding provided by Platypus Asset Management is greatly appreciated. The views expressed in this article are the views of the authors; they do not necessarily represent the views of First State Super.

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