Feasible earnings momentum in the U.S. stock market: An investor's perspective

Christopher Krauss, Daniel Beerstecher and Tom Krüger

No 12/2015, FAU Discussion Papers in Economics from Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics

Abstract: This paper examines earnings momentum strategies in the U.S. stock universe from an investor's perspective. Specifically, we use the software Stock Investor Pro from the American Association of Individual Investors (AAII) to obtain the composition of the U.S. stock universe from 2005-2015 on a weekly basis. Raw data is validated via Thomson Reuters Datastream. Next, we implement long-only and long-short earnings momentum strategies based on earnings estimates revisions. Furthermore, we develop a novel price-earnings momentum strategy by intertwining earnings momentum with a 52 week high strategy. Our findings re-confirm the high returns of the classical earnings momentum strategy with equal-weighted raw returns of 23.6 percent p.a. for the monthly long-only strategy. Most importantly, we find large parts of these raw returns to be robust to a wide spectrum of systematic sources of risk and feasible in light of market frictions, such as trading costs, liquidity constraints and microstructure effects. The enhanced price-earnings momentum strategy invests in earnings momentum stocks with below-median distance to their 52 week high. This simple alteration leads to an improvement of annualized raw returns to 31.0 percent, equally robust to systematic sources of risk and market frictions. We conclude that earnings momentum strategies are feasible and continue to pose a serious challenge to the semi-strong form of market efficiency.

Keywords: earnings momentum; price momentum; market efficiency; return predictability (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/121237/1/837249333.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:zbw:iwqwdp:122015

Access Statistics for this paper

More papers in FAU Discussion Papers in Economics from Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().