Around 1997, academics began to close heed “momentum factor”: a tendency of hot stock shares to continue climbing and winter stocks continue to decline. As the size and value of securities, the existence of momentum has been well documented, and studies have attempted to identify the source (the behavior or risk) premium momentum. A new study takes the approach of the “frog-in-the-pan” to describe momentum.
According to a frog-in-the-pan anecdotes, a frog will jump out of the pan containing boiling water because of the dramatic changes in temperature induces immediate reaction. However, if the water in a saucepan, boil a frog slowly raised would underreact and perish. (And yes, I understand this story really false.)
This limited-time attention to literature implicitly assume that investors can only process so much information at once. For example, the effect of earnings announcement seems to be following the last day is longer with a large number of announcements–income investors are overwhelmed by the amount of information released on this day. If investors react differently to the flow of persistent information than they did for discrete bits of information, it will provide a description of the behavior of momentum.
The authors of the paper, “a frog in the Pan: a continuous information and Momentum,” argues that investors are constantly arriving underreact information in small amounts. In fact, they found that a profit momentum following information continuously remained for eight months, while a profit following significant momentum discrete information after two months.