TY - JOUR

T1 - International price and earnings momentum

AU - Leippold, Markus

AU - Lohre, Harald

PY - 2012/7/1

Y1 - 2012/7/1

N2 - 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.

AB - 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.

KW - earnings momentum

KW - information uncertainty

KW - liquidity

KW - market efficiency

KW - multiple hypothesis testing

KW - price momentum

U2 - 10.1080/1351847X.2011.628683

DO - 10.1080/1351847X.2011.628683

M3 - Journal article

AN - SCOPUS:84862252040

VL - 18

SP - 535

EP - 573

JO - European Journal of Finance

JF - European Journal of Finance

SN - 1351-847X

IS - 6

ER -