Individualism, Uncertainty Avoidance, and Earnings Momentum in International Markets
Yiwen (Paul) Dou
James E. Hunton
Bentley University - Department of Accountancy; Erasmus University
Monash University; Financial Research Network (FIRN)
T.A. PAI Management Institute, Finance Area
November 29, 2010
Finance and Corporate Governance Conference 2011 Paper
The literature shows that price and earnings momentum returns cannot be fully explained by risk-based theories. In an attempt to better understand the price momentum anomaly, Chui et al.  document that the cultural factor of "individualism" influences price momentum returns, but that the cultural factor of "uncertainty avoidance" does not. The current study extends Chui et al.  by examining the influence of individualism and uncertainty avoidance on earnings momentum profits, as theory suggests that unique characteristics associated with earnings momentum, relative to price momentum, give rise to significant effects for both these cultural factors. Using data from 41 countries, we show that the level of individualism in a country is positively associated with earnings momentum profits and that the level of uncertainty avoidance is negatively associated with earnings momentum profits. This study contributes to the ongoing quest to better understand the earnings momentum phenomenon.
Number of Pages in PDF File: 47
Keywords: post-earnings announcement drift, individualism, earnings momentum, uncertainty avoidance, culture
Date posted: December 1, 2010
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