Twin Momentum: Fundamental Trends Matter
53 Pages Posted: 9 Jan 2017 Last revised: 29 Mar 2018
Date Written: March 1, 2018
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: Suggested Citation