Link to this paper is here.
“While prior studies examine the performance of stocks with extreme weekly returns for only a few weeks, which is the duration of the reversal, momentum profits emerge several weeks after an extreme return and persist over the remainderof the year. The momentum that we document easily offsets the brief and initial reversal in returns.”
Reversal is the current stylized fact of weekly returns. However, the brief reversal that follows extreme weekly returns is itself followed by an opposing and long lasting stream of continuation in returns. These subsequent momentum profits are strong enough to offset the initial reversal and to produce a significant momentum effect over the full year following portfolio formation. Thus, ex post, extreme weekly returns are not too extreme. Our findings extend to weekly price movements with and without public news. In addition, there is no relation between news uncertainty and the momentum in one-week returns.