MOMENTUM, ACCELERATION, AND REVERSAL

James X. Xiong and Roger G. Ibbotson

This paper studies the impact of accelerated stock price increases on future performance. Accelerated stock price increases are a strong contributor to both poor future performance and a higher probability of reversals. It implies that accelerated growth is not sustainable and can lead to drops. The acceleration mechanism is also able to reconcile the well-documented 2–12 month momentum phenomenon and 1-month reversal.