Earnings acceleration and stock returns

Shuoyuan He and Narayanamoorthy, Ganapathi (Gans)

Journal of Accounting and Economics, 2020, vol. 69, issue 1

Abstract: We document that earnings acceleration, defined as the quarter-over-quarter change in earnings growth, has significant explanatory power for future excess returns. These excess returns are robust to a wide range of previously documented anomalies and a battery of risk controls. The future return predictability appears to be consistent with investors assuming a seasonal random walk model for quarterly earnings and missing predictable implications of earnings acceleration for future earnings growth. Finally, the excess returns from the basic earnings acceleration strategy can be enhanced further by focusing on profit firms, low earnings volatility firms and on specific patterns of earnings acceleration.

Keywords: Earnings acceleration; Trading strategy; Active investing; Mispricing; Anomaly (search for similar items in EconPapers)
JEL-codes: G14 M41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:69:y:2020:i:1:s0165410119300333

DOI: 10.1016/j.jacceco.2019.101238

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