Enhancing the Profitability of Earnings Momentum Strategies: The Role of Price Momentum, Information Diffusion and Earnings Uncertainty
Allianz Investment Management
University of Muenster
Friedrich-Alexander-Universität (FAU) Erlangen-Nürnberg
April 11, 2013
Journal of Investment Strategies, Vol. 2, No. 4, 2013
Recent literature indicates that stock characteristics proxying for behavioral biases reinforce the earnings momentum effect. Using data from the investable German HDAX, we analyze whether returns of earnings momentum strategies can be enhanced in a way that not only survives common risk adjustments but also maintains profitability after trading costs. For our liquid stock universe, we find that the rate of information diffusion has the strongest impact. A bivariate sort on earnings momentum and market capitalization yields gross Carhart alphas of up to 22% per year. The abnormal returns are largely robust to reasonable levels of trading costs.
Number of Pages in PDF File: 51
Keywords: Analysts’ Earnings Forecast Revisions, Earnings Momentum, Post-Revision Price Drift, Portfolio Management, Market Efficiency
JEL Classification: G11, G12, G14
Date posted: April 18, 2011 ; Last revised: October 8, 2013
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