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Momentum Strategies
Author(s) -
CHAN LOUIS K. C.,
JEGADEESH NARASIMHAN,
LAKONISHOK JOSEF
Publication year - 1996
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1996.tb05222.x
Subject(s) - predictability , earnings , earnings surprise , economics , post earnings announcement drift , momentum (technical analysis) , market efficiency , financial economics , surprise , monetary economics , earnings response coefficient , finance , psychology , social psychology , physics , quantum mechanics
We examine whether the predictability of future returns from past returns is due to the market's underreaction to information, in particular to past earnings news. Past return and past earnings surprise each predict large drifts in future returns after controlling for the other. Market risk, size, and book–to–market effects do not explain the drifts. There is little evidence of subsequent reversals in the returns of stocks with high price and earnings momentum. Security analysts' earnings forecasts also respond sluggishly to past news, especially in the case of stocks with the worst past performance. The results suggest a market that responds only gradually to new information.