Dissecting Stock Price Momentum Using Financial Statement Analysis

Forthcoming in Accounting and Finance

57 Pages Posted: 1 Mar 2018

See all articles by Anwer S. Ahmed

Anwer S. Ahmed

Texas A&M University - Mays Business School

Irfan Safdar

Widener University

Multiple version iconThere are 3 versions of this paper

Date Written: December 25, 2017

Abstract

The literature on stock price momentum documents that past price performance predicts future price performance (over the next 3-12 months). We argue that past price performance can be driven either by fundamentals or non–fundamental reasons and financial statement analysis (FSA) can help distinguish between these drivers of past returns. We find that price momentum reverses where fundamentals are inconsistent with past price performance, allowing us to develop an investment strategy that outperforms a pure momentum strategy over 80% of the time. Overall, we document robust evidence on the usefulness of FSA for enhancing momentum strategies.

Keywords: Financial Statement Analysis, Fundamental Analysis, Stock Price Momentum

JEL Classification: G11, G12, G14

Suggested Citation

Ahmed, Anwer S. and Safdar, Irfan, Dissecting Stock Price Momentum Using Financial Statement Analysis (December 25, 2017). Forthcoming in Accounting and Finance. Available at SSRN: https://ssrn.com/abstract=3127181

Anwer S. Ahmed

Texas A&M University - Mays Business School ( email )

430 Wehner
College Station, TX 77843-4353
United States

Irfan Safdar (Contact Author)

Widener University ( email )

Chester, PA 19013
United States

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