Individualism, Uncertainty Avoidance, and Earnings Momentum in International Markets

Paul Dou, Cameron Truong and Madhu Veeraraghavan

Contemporary Accounting Research, 2016, vol. 33, issue 2, 851-881

Abstract: This study examines whether cultural dimensions such as individualism and uncertainty avoidance can explain the variation in the profitability of the earnings momentum strategies in international markets. Using the time†varying cultural indices of Tang and Koveos (2008) for 30,383 firms from 41 countries over the period 1995–2008, we show that the level of individualism in a country is positively associated and the level of uncertainty avoidance is negatively associated with earnings momentum profits. Our findings are robust to the inclusion of a comprehensive set of control variables and alternative cultural metrics. The central message is that we emphasize the necessity to go beyond the assumption of perfect rationality and to account for innate differences among international investors to explain how accounting information is incorporated into stock prices. We recommend that cultural dimensions be included in cross†country research to account for innate differences among international investors.

Date: 2016
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https://doi.org/10.1111/1911-3846.12155

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Persistent link: https://EconPapers.repec.org/RePEc:wly:coacre:v:33:y:2016:i:2:p:851-881

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