Twin Momentum: Fundamental Trends Matter

64 Pages Posted: 9 Jan 2017 Last revised: 10 Jan 2019

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)

Yingzi Zhu

Tsinghua University - School of Economics & Management

Date Written: January 7, 2019

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%, whose magnitude is comparable to price momentum. Combining price momentum and fundamental momentum produces a twin momentum, earning an average return that exceeds the sum of the two momentum returns. Our results show that firm fundamental trends play an economically much more important role than previously thought. Theoretically, we show that investors can learn from fundamental trends about future stock returns in an equilibrium model, providing an economic rationale for fundamental momentum.

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 and Zhu, Yingzi, 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/

China Academy of Financial Research (CAFR)

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

Yingzi Zhu

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China
+86-10-62786041 (Phone)

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