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Researchers have struggled to find rational risk factors that explain momentum profits derived from buying recent winners and shorting recent losers. Behavioral explanations have been offered that focus on the tendencies of investors to underreact to news and recommendations. Our study provides an alternative explanation centered on the behavior of sell-side analysts. We find a change in consensus recommendation from a hold to a buy is accompanied by an increase in momentum profits of 3.40% annually. Momentum profits fall, yet remain material, after the passage of Reg FD and the enactment of the Global Analyst Research Settlement. Our results support a behavioral explanation of investor cognitive biases fueled by analyst regency and optimism biases.


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  • Institution
    • Dahlonega

  • Publisher
    • Taylor and Francis Ltd.

  • Date submitted

    20 July 2022

  • Keywords
  • Additional information
    • Author Biography:

      Dr. Jimmy Lockwood serves as assistant professor of finance in the Mike Cottrell College of Business at the University or North Georgia. He his an active member of the Financial Management Association, Southern Finance Association and the Southwestern Finance Association.

      Book or Journal Information:

      Journal of Behavioral Finance