Fundamentally, Momentum is Fundamental Momentum

Robert Novy-Marx

No 20984, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Momentum in firm fundamentals, i.e., earnings momentum, explains the performance of strategies based on price momentum. Earnings surprise measures subsume past performance in cross sectional regressions of returns on firm characteristics, and the time-series performance of price momentum strategies is fully explained by their covariances with earnings momentum strategies. Controlling for earnings surprises when constructing price momentum strategies significantly reduces their performance, without reducing their high volatilities. Controlling for past performance when constructing earnings momentum strategies reduces their volatilities, and eliminates the crashes strongly associated with momentum of all types, without reducing the strategies' high average returns. While past performance does not have independent power predicting the cross section of expected returns, it does predicts stock comovements, and is thus important for explain cross sectional variation in realized returns.

JEL-codes: G12 (search for similar items in EconPapers)
Date: 2015-02
New Economics Papers: this item is included in nep-bec and nep-mfd
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://www.nber.org/papers/w20984.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:20984

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w20984

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().