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Twin Momentum: Fundamental Trends Matter

53 Pages Posted: 9 Jan 2017 Last revised: 8 Nov 2017

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 - Olin School of Business; CAFR (China Academy for Financial Research)

Date Written: October 6, 2017

Abstract

Using the time-series trends of a collection of firms' major fundamentals, we find that fundamental trends matter. A fundamental momentum strategy that goes long stocks in the top quintile in fundamental trends and short stocks in the bottom quintile earns a monthly average return of 88 bps, and is comparable with price momentum. Combining price momentum and fundamental momentum yields a twin momentum, which has an average return more than the sum of price momentum and fundamental momentum. Twin momentum cannot be spanned by extant risk factors, nor can it be explained by short-sale impediments and investor sentiment.

Keywords: Price Momentum, Fundamental Momentum, Twin Momentum, Sticky Expectation

JEL Classification: G12, G14

Suggested Citation

Huang, Dashan and Zhang, Huacheng and Zhou, Guofu, Twin Momentum: Fundamental Trends Matter (October 6, 2017). 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

CAFR (China Academy for Financial Research)

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

Washington University in St. Louis - Olin School of Business ( 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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