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Momentum Strategies
Louis K.C. Chan University of Illinois at Urbana-Champaign - Department of Finance Narasimhan Jegadeesh Emory University - Department of Finance Josef Lakonishok University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER) December 1995 NBER Working Paper No. W5375 Abstract: We relate the predictability of future returns from past returns to the market's underreaction to information, focusing on past earnings news. Past return and past earnings surprise each predict large drifts in future returns after controlling for the other. There is little evidence of subsequent reversals in the returns of stocks with high price and earnings momentum. Market risk, size and book-to- market effects do not explain the drifts. 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.
JEL Classifications: G1 Working Paper SeriesDate posted: July 24, 2000 ; Last revised: March 20, 2008Suggested CitationContact Information
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