A Tale of Two Anomalies: The Implication of Investor Attention for Price and Earnings Momentum

Kewei Hou, Lin Peng and Wei Xiong
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Kewei Hou: Ohio State University
Lin Peng: City University of New York
Wei Xiong: Princeton University

Working Papers from Princeton University. Economics Department.

Abstract: We examine the role of investor attention in explaining the profitability of price and earnings momentum strategies. Using trading volume and market state to measure cross-sectional and time-series variations of investor attention, we find that price momentum profits are higher among high volume stocks and in up markets, but that earnings momentum profits are higher among low volume stocks and in down markets. In the long run, price momentum profits reverse but earnings momentum profits do not. These results suggest that price underreaction to earnings news weakens with investor attention, but price continuation caused by investors’ overreaction strengthens with attention.

Keywords: Price Momentum Strategies; Earnings Momentum Strategies; Investors (search for similar items in EconPapers)
JEL-codes: E22 (search for similar items in EconPapers)
Date: 2009-01
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Persistent link: https://EconPapers.repec.org/RePEc:pri:econom:2009-4

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