Momentum Strategies

Chan, Louis K.C.; Jegadeesh, Narasimhan; Lakonishok, Josef

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Momentum Strategies

J. OF FINANCE, Vol. 51 No. 5, December 1996

Posted: 23 Oct 1996

See all articles by Louis K.C. Chan

Louis K.C. Chan

University of Illinois at Urbana-Champaign - Department of Finance

Narasimhan Jegadeesh

Emory University - Department of Finance

Josef Lakonishok

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

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Abstract

We examine whether the predictability of future returns from past returns is due to the market's underreaction to information, in particular to past earnings news. Past returns and past earnings surprise each and predict large drifts in future returns after controlling for the other. Market risk, size and book-to-market effects do not explain the drifts. There is little evidence of subsequent reversals in the returns of stocks with high price and earnings momentum. Security analysts' earnings forecasts also respond sluggishly to past news, especially in the case of stocks with the worst past performance. The results suggest a market that responds only gradually to new information.

JEL Classification: G19

Suggested Citation: Suggested Citation

Chan, Louis K.C. and Jegadeesh, Narasimhan and Lakonishok, Josef, Momentum Strategies. J. OF FINANCE, Vol. 51 No. 5, December 1996, Available at SSRN: https://ssrn.com/abstract=7836