A Tale of Two Anomalies: The Implications of Investor Attention for Price and Earnings Momentum

44 Pages Posted: 2 Apr 2007 Last revised: 11 Nov 2010

See all articles by Kewei Hou

Kewei Hou

Ohio State University (OSU) - Department of Finance

Wei Xiong

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Lin Peng

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Date Written: January 16, 2009

Abstract

We examine the role of investor attention in explaining the profitability of price and earnings momentum strategies. Using trading volume and market state to measure cross-sectional and time-series variations of investor attention, we find that price momentum profits are higher among high volume stocks and in up markets, but that earnings momentum profits are higher among low volume stocks and in down markets. In the long run, price momentum profits reverse but earnings momentum profits do not. These results suggest that price underreaction to earnings news weakens with investor attention, but price continuation caused by investors' overreaction strengthens with attention.

Suggested Citation

Hou, Kewei and Xiong, Wei and Peng, Lin, A Tale of Two Anomalies: The Implications of Investor Attention for Price and Earnings Momentum (January 16, 2009). Available at SSRN: https://ssrn.com/abstract=976394 or http://dx.doi.org/10.2139/ssrn.976394

Kewei Hou (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-0552 (Phone)
614-292-2418 (Fax)

Wei Xiong

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lin Peng

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

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