On the Treatment of the Momentum Factor in Accounting-Based Anomalies: A Discussion

Philip Keejae Hong, Kyonghee Kim and Sukesh Patro

Chapter 105 in Handbook of Investment Analysis, Portfolio Management, and Financial Derivatives:In 4 Volumes, 2024, pp 3445-3461 from World Scientific Publishing Co. Pte. Ltd.

Abstract: We survey the literature on anomalies in accounting research with a specific focus on whether and how they account for the momentum effect (Jegadeesh and Titman, 1993, 2001). Even though accounting academics recognize treatment of the momentum effect via inclusion in an extended Fama-French model to be appropriate, most extant empirical studies of accounting anomalies either do not account for the momentum effect or do so as a robustness check. Where included in the analysis, the momentum factor substantially reduces returns to portfolio strategies which exploit market underreaction. We argue that this treatment is in part due to the normal lag in the incorporation of research innovations but also likely due to persisting differences of opinion in the finance and accounting literature on whether to treat momentum as an anomaly or an asset pricing factor. More recent studies in accounting, however, seem to account for and treat the momentum effect more uniformly.

Keywords: Financial Accounting; Financial Auditing; Mutual Funds; Hedge Funds; Asset Pricing; Options; Portfolio Analysis; Risk Management; Investment Analysis; Momentum Analysis; Behavior Analysis; Futures; Index Futures; CDCs; Financial Econometrics; Statistics; Financial Derivatives; Financial Accounting (search for similar items in EconPapers)
JEL-codes: G1 G11 G12 G3 M41 M42 (search for similar items in EconPapers)
Date: 2024
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