Twin Momentum: Fundamental Trends Matter

53 Pages Posted: 9 Jan 2017 Last revised: 29 Mar 2018

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 the time-series trends of a set of firms' major fundamentals, we find that fundamental trends matter. A fundamental momentum strategy that buys stocks in the top quintile of fundamental trends and sells stocks in the bottom quintile earns a monthly average return of 88 bps, and is comparable with the price momentum strategy. Combining price momentum and fundamental momentum results in a twin momentum, which offers an average return that exceeds the sum of the returns from price momentum and fundamental momentum. Twin momentum cannot be spanned by extant risk factors, nor can it be explained by short-sale impediments or investor sentiment.

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://sites.google.com/site/dashanhuang2012/

Huacheng Zhang

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

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Guofu Zhou

China Academy of Financial Research (CAFR)

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

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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