Fundamental momentum and enhanced fundamental momentum: Evidence from the Chinese stock market

Yuanyue Tan, Zhiqiang Wang, Haifang Xiong and Yue Liu

International Review of Economics & Finance, 2022, vol. 79, issue C, 680-693

Abstract: We use fundamental information to select stocks and construct fundamental momentum in this paper. We use LASSO to select eight fundamental variables from 27 fundamental characteristics mentioned in the previous literature. Then, we integrate these 8 variables into a proxy named FIR (fundamental implies return) as the sorting variable of fundamental momentum. Fundamental momentum generates a monthly return of 1.100%, and it outperforms other single factor fundamental strategies. Furthermore, we show that the abnormal returns of fundamental momentum are due to investors’ limited attention. Moreover, we find that fundamental factors and price factors are complementary in forecasting future returns, and combining price reversal and fundamental momentum into enhanced fundamental momentum earns a 2.107% monthly return.

Keywords: Fundamental momentum; Limited attention; Price reversal; Enhanced fundamental momentum (search for similar items in EconPapers)
JEL-codes: G11 G12 G17 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:79:y:2022:i:c:p:680-693

DOI: 10.1016/j.iref.2022.02.012

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