from a number of less developed stock markets also exhibit momentum, (see
Rouwenhorst 1999, and Chui, Titman, and Wei 2000), although the mo-
mentum strategies are not always profitable within individual countries. In
addition, recent papers by Chan, Hameed, and Tong (2000), and Bhojraj
and Swaminathan (2003) find that international stock market indexes also
exhibit momentum.
This chapter presents a review of the evidence on momentum strategies
and the hypotheses that have been proposed to explain the momentum ef-
fect. Section 1 provides a brief summary of the evidence on price momen-
tum. Section 2 discusses the potential sources of momentum profits. Section
3 briefly describes some of the behavioral explanations for the momentum
effect. These behavioral explanations have implications for the long horizon
returns of momentum portfolios, as well as for cross-sectional differences
in momentum profits. Section 4 and section 5 review the empirical evidence
in the context of these predictions. Section 6 summarizes the literature on
earnings momentum and the relation between earnings and price momen-
tum, and section 7 provides our conclusions.
354 JEGADEESH AND TITMAN
Figure 10.1. This figure presents the cumulative five-year returns for a strategy that
buys the decile of stocks that earned the highest returns over the previous six-months
and sells the decile of stocks that earned the lowest returns over the previous six-
months. The holding period is six months. The figure presents the cumulative returns
starting from the month on the x-axis.