Twin Momentum: Fundamental Trends Matter

55 Pages Posted: 9 Jan 2017 Last revised: 2 Nov 2018

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; China Academy of Financial Research (CAFR)

Date Written: March 1, 2018

Abstract

Using time-series trends of a set of firms' major 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 quintile earns a monthly average return of 0.88%, which is comparable to price momentum. Combining price and fundamental momentum produces a twin momentum, earning an average return that exceeds the sum of the two momentum returns. Our results not only support the view that fundamental analysis is as important as technical analysis, but also indicate that trends contain incremental information for 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 (March 1, 2018). 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/

China Academy of Financial Research (CAFR)

Shanghai Advanced Institute of Finance
Shanghai P.R.China, 200030
China

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