Who Drives Momentum Returns? The Role Reversal of Trend‐Seeking Households and Contrarian Institutions

ABSTRACT Using comprehensive trade data with direct investor identification, we show that momentum returns increase by 21 basis points monthly when households abandon their usual contrarian behaviour to become trend‐seekers. Momentum returns increase to 40 basis points above unconditional levels when households buy winners and institutions sell losers, reversing their typical roles. These role reversals occur in 25% of months, disrupting the standard household liquidity provision mechanism. We argue that the accentuated returns are due to impaired price discovery during the formation period, followed by heightened momentum during the holding period.