Text-Based Industry Momentum

Abstract

We test the hypothesis that low visibility shocks to text-based network industry peers can explain industry momentum. We consider industry peer firms identified through 10-K product text and focus on economic peer links that do not share common SIC codes. Shocks to less visible peers generate economically large momentum profits, and are stronger than own-firm momentum variables. More visible traditional SIC-based peers generate only small, short-lived momentum profits. Our findings are consistent with momentum profits arising partially from inattention to economic links of less visible industry peers.

Keywords: Momentum, Information Processing, Industry Shocks, Stock Returns, Alpha, Trading Strategies, Market Efficiency, Reversals

JEL Classification: G11, G12, G14