Premium
Dissecting stock price momentum using financial statement analysis
Author(s) -
Ahmed Anwer S.,
Safdar Irfan
Publication year - 2018
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12358
Subject(s) - momentum (technical analysis) , stock price , economics , stock (firearms) , financial economics , financial statement , statement (logic) , econometrics , accounting , engineering , series (stratigraphy) , law , mechanical engineering , political science , paleontology , audit , biology
The literature on stock price momentum documents that past price performance predicts future price performance (over the next 3–12 months). We argue that past price performance can be driven either by fundamentals or by non‐fundamental reasons and financial statement analysis (FSA) can help distinguish between these drivers of past returns. We find that price momentum reverses where fundamentals are inconsistent with past price performance, allowing us to develop an investment strategy that outperforms a pure momentum strategy over 80 percent of the time. Overall, we document robust evidence on the usefulness of FSA for enhancing momentum strategies.