International price and earnings momentum

Leippold, Markus and Lohre, Harald (2012) International price and earnings momentum. European Journal of Finance, 18 (6). pp. 535-573. ISSN 1351-847X

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Abstract

In this paper, we find that price and earnings momentum are pervasive features of international equity markets even when controlling for data-snooping biases. For Europe, we show price momentum to be subsumed by earnings momentum on an aggregate level. However, this rationale can hardly be sustained on a country level. Also, the above explanation is confined to certain time periods in the USA. Since we cannot establish a decent relation between momentum and macroeconomic risks, we suspect a behavior-based explanation to be at work. In fact, we find momentum profits to be more pronounced for portfolios characterized by higher information uncertainty. Hence, the momentum anomaly may well be rationalized in a model of investors underreacting to fundamental news. Finally, we find that momentum works better when limited to stocks with high idiosyncratic risk or higher illiquidity, suggesting that limits to arbitrage deter rational investors from exploiting the anomaly.

Item Type:
Journal Article
Journal or Publication Title:
European Journal of Finance
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2001
Subjects:
ID Code:
160318
Deposited By:
Deposited On:
08 Oct 2021 12:50
Refereed?:
Yes
Published?:
Published
Last Modified:
14 Oct 2021 05:44