Beschreibung:
Prior studies show that momentum is induced because investors underreact to information when anchored by the 52-week high (52WH). We propose that investors’ anchoring bias could vary over time and that the dynamic of the nearness to the 52WH better captures the tendency of investors’ underreaction to information. Accordingly, we develop a dynamic 52WH (denoted as D52WH) momentum strategy that buys (short sells) stocks with the nearness to the 52WH ranked in the top (bottom) 10% of the historical distribution. The D52WH momentum generates significant profitability, which outperforms and subsumes the 52WH momentum profitability, but not vice versa. A major advantage of the D52WH momentum over the 52WH momentum is that it experiences considerably weaker momentum crashes. Further evidence shows that the D52WH momentum is more pronounced under limited investor attention and lower shorting activities, thus confirming the underreaction-driven return predictability implied by the anchoring bias