Twin Momentum: Fundamental Trends Matter

50 Pages Posted: 9 Jan 2017 Last revised: 7 Jun 2021

See all articles by Dashan Huang

Dashan Huang

Singapore Management University - Lee Kong Chian School of Business

Huacheng Zhang

Southwestern University of Finance and Economics - Institute of Financial Studies

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School

Date Written: January 7, 2019

Abstract

Using trends in firm fundamentals, we find that there is a fundamental momentum in the stock market. Buying stocks in the top quintile of fundamental trends and selling stocks in the bottom earns a monthly average return of 0.85%, comparable to price momentum. Combining both price and fundamental momentum produces a twin momentum, which earns an average return that exceeds their sum and is difficult to explain by short-sell impediments. Our results not only support the view that fundamental analysis is as important as technical analysis, but also indicate that trends contain incremental information beyond often used lagged fundamental predictors.

Keywords: Price momentum, Fundamental momentum, Twin momentum, Information diffusion, Sticky expectation

JEL Classification: G12, G14

Suggested Citation

Huang, Dashan and Zhang, Huacheng and Zhou, Guofu, Twin Momentum: Fundamental Trends Matter (January 7, 2019). Available at SSRN: https://ssrn.com/abstract=2894068 or http://dx.doi.org/10.2139/ssrn.2894068

Dashan Huang (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
Singapore, 178899
Singapore

HOME PAGE: http://dashanhuang.weebly.com/

Huacheng Zhang

Southwestern University of Finance and Economics - Institute of Financial Studies ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School ( email )

Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)

HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/

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