Dissecting Stock Price Momentum Using Financial Statement Analysis
Forthcoming in Accounting and Finance
57 Pages Posted: 1 Mar 2018
Date Written: December 25, 2017
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: Suggested Citation