The Impact of Information Dissemination with Emphasis on Absolute Information Discontinuity on the Effect of Time-Series Momentum

Abstract

Behavioral financial development is founded on the criticisms directed at the efficient market hypothesis. Although many anomalies have faded over time, momentum has persisted powerfully after being formally documented, reflecting the result of gradual information dissemination and psychological conservatism among investors. This conservatism manifests in systematic errors in forming earnings expectations, as investors fail to update their beliefs and underweight the statistical value of new information. Purposeful fluctuations in the design of time-series momentum lead to improved performance compared to cross-sectional momentum returns. This study examines the impact of information dissemination with a focus on absolute information discontinuity on the effect of time-series momentum. The analysis is conducted through two components: information discontinuity and information uncertainty, using a sample of 120 selected companies listed on the stock exchange, categorized into four random decile portfolios. These two metrics assess the entry of information and the level of information noise. To examine the effect of time-series momentum, its strategies are analyzed over two sets of formation and holding periods ranging from 3 to 36 months between 2021 and 2023 (Gregorian calendar). Given that time-series momentum represents a net long investment strategy that varies with time horizons, its analysis across twelve formation and holding periods, using multivariate regression to test the hypothesis, revealed that in long-term formation and short-term holding strategies, information dissemination significantly influences the effect of time-series momentum.