Corporate Innovation, Price Momentum, and Equity Returns
54 Pages Posted: 7 Feb 2005
Date Written: November 8, 2004
We define corporate innovation (CI) as the proportion of a firm's change in gross profit margin not explained by the change in the capital and labor it utilizes. We show that CI contains important information about expected equity returns. This information is very different from information contained in earnings surprises variables. It is however strongly related to the information contained in past returns, and can explain much of the performance of price momentum strategies.
Keywords: Corporate innovation, earnings surprises, price momentum, reversals
JEL Classification: G12, G14
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