Market Conditions and Momentum in Japanese Stock Returns

抄録

This study examines the momentum effect in Japanese stock returns on the basis of market conditions. Although previous studies did not find a momentum effect in Japanese stock returns, this study provides evidence that significant momentum profits exist for a particular market condition. When the market is divided into UP and DOWN states, momentum profits are found in the UP market states. A further classification of UP and DOWN market states on the basis of subsequent continuation and reversion (UP-UP, UP-DOWN, DOWN-UP, and DOWN-DOWN) indicates that momentum profits are evident only in the reverting UP states (UP-DOWN). I argue that investors' under-reaction to information causes momentum profits in the reverting UP states in Japan.