This paper demonstrates that rational momentum can exist in an economy where autocorrelated risk and convex dividend policies are present. It then studies the momentum role of firms. When a firm actively creates positive productivity shocks and accordingly increases its production scale, its...

This paper first demonstrates that, in a discrete time framework, rational momentum can exist in an economy that has autocorrelated risk and convex dividend policies. It then uses this framework to examine the momentum role of firms. When firms actively create positive productivity shocks and...