Does Revenue Momentum Drive or Ride Earnings or Price Momentum?

53 Pages Posted: 22 Mar 2010 Last revised: 11 Oct 2013

See all articles by Hong-Yi Chen

Hong-Yi Chen

National Chengchi University - Department of Finance

Sheng‐Syan Chen

National Taiwan University - Department of Finance

Chin-Wen Hsin

Yuan-Ze University - Department of Finance

Cheng-Few Lee

Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics

Date Written: July 12, 2013

Abstract

This paper examines the profits of revenue, earnings, and price momentum strategies in an attempt to understand investor reactions when facing multiple information of firm performance in various scenarios. We first offer evidence that there is no dominating momentum strategy among the revenue, earnings, and price momentums, suggesting that revenue surprises, earnings surprises, and prior returns each carry some exclusive unpriced information content. We next show that the profits of momentum driven by firm fundamental performance information (revenue or earnings) depend upon the accompanying firm market performance information (price), and vice versa. The robust monotonicity in multivariate momentum returns is consistent with the argument that the market does not only underestimate the individual information but also the joint implications of multiple information on firm performance, particularly when they point in the same direction. A three-way combined momentum strategy may offer monthly return as high as 1.44%. The information conveyed by revenue surprises and earnings surprises combined account for about 19% of price momentum effects, which finding adds to the large literature on tracing the sources of price momentum.

Keywords: Revenue Surprises; Earnings Surprises; Post-Earnings-Announcement Drift; Momentum Strategies

JEL Classification: G11, G14

Suggested Citation

Chen, Hong-Yi and Chen, Sheng-Syan and Hsin, Chin-Wen and Lee, Cheng-Few, Does Revenue Momentum Drive or Ride Earnings or Price Momentum? (July 12, 2013). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1571883 or http://dx.doi.org/10.2139/ssrn.1571883

Hong-Yi Chen (Contact Author)

National Chengchi University - Department of Finance ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei, 11623
Taiwan

Sheng-Syan Chen

National Taiwan University - Department of Finance ( email )

College of Management
50 Lane 144, Section 4
Taipei 32026, Taiwan
China
+886 2 3366 1083 (Phone)

Chin-Wen Hsin

Yuan-Ze University - Department of Finance ( email )

135 Far-East Rd., Chung-Li 320
Taipei
Taiwan

Cheng-Few Lee

Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics ( email )

111 Washington Avenue
Newark, NJ 07102
United States
732-445-3907 (Phone)
732-445-5927 (Fax)

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