Peña, Princess Shyne S.

February 14, 2020

BS ChEng 4-A FIN-ELEC 2247 5:40PM – 7:10PM MW

A REFLECTION PAPER ON MOMENTUM STRATEGIES BY LOUIS K. C. CHAN,

NARASIMHAN JEGADEESH, AND JOSEF LAKONISHO

In the journal, it is examined whether the predictability of future returns from past
returns is due to the market's underreaction to information. This journal states different
investment strategies and how do these strategies approach momentum and reversal. These
strategies are often questioned for their profitability in the long run and whether these are
effective strategies to profit from persisting market trends [ CITATION Seg19 \l 13321 \m Dhi19].
Later on, it explains how should the market react to information, such as past earnings news.

As stated, this paper fills in some of the gap in our understanding on why a stock's prior
six-month return and the most recent earnings surprise help to predict future returns. An
explanation for this is that the market responds gradually to new information. Since earnings
provide an ongoing source of information about a firm's prospects, we focus on the market's
reaction when earnings are released. In fact, a considerable portion of the momentum effect is
focused on succeeding earnings announcements.

It can be seen that the strategies presented in order to profit in the market during
momentum is quite complicated. It can be seen that there are technical standards and such that
are needed so that you can precisely and accurately invest during persisting market trends. I
believe that it takes practice and dedication as you need to be keen especially on market trends as
stock prices changes every now and then. It made me realize that in behavioral finance, one of
the finance subjects I’m taking this semester, not only the behavior of people but also the
behavior of the market should be taken into account especially in investing since the goal of
finance is to maximize shareholder’s wealth. The strategies presented in the journal made me
realize that there are many ways to maximize wealth and that these involve even complicated
analysis on the market that I, a non-finance major could not even fathom.
 Moreover, I am curious as to how these concepts apply in chemical engineering. Maybe,
not in a financial way, but the way how analysts analyze current market trends and making
informed decisions. It may be likened to how a chemical engineer analyzes results in a
processing plant and deciding how to optimize the processes involved to bring about greater
production capacity and efficiency and in turn, greater profits. Maybe momentum strategies offer
a wide variety of applications, especially in different fields of knowledge.

References
Dhir, R. (2019, January 18). Momentum Definition. Retrieved from Investopedia:
https://www.investopedia.com/terms/m/momentum.asp

Segal, T. (2019, May 1). Momentum Investing Definition . Retrieved from Investopedia:
https://www.investopedia.com/terms/m/momentum_investing.asp