Swing Trading Signals


Since 2013

  • 100% Quantified, data-driven and Backtested
  • We always show our results!
  • Signals every day via our site or email
  • Cancel at any time!

Does Revenue Momentum Drive or Ride Earnings or Price Momentum?

Last Updated on 10 February, 2024 by Rejaul Karim

In the intricate landscape of market dynamics, our investigation into “Does Revenue Momentum Drive or Ride Earnings or Price Momentum?” delves into the nuanced interplay of revenue, earnings, and price momentum strategies. As we navigate this financial terrain, our study unravels a complex relationship, dispelling the notion of a one-size-fits-all momentum strategy.

Contrary to expectations, there is no overarching dominance among revenue, earnings, and price momentums, suggesting each harbors exclusive unpriced information content. We shed light on the intricate dance between fundamental performance indicators (revenue and earnings) and market performance (price), unveiling a dynamic dependence that transcends unidirectional influence.

The robust monotonicity in multivariate momentum returns underscores the market’s challenge in comprehending the joint implications of diverse performance indicators. A trifecta momentum strategy, seamlessly weaving revenue surprises, earnings surprises, and prior returns, emerges with a monthly return potential as high as 1.44%. This revelation propels us into the ongoing narrative of understanding the multifaceted origins of price momentum effects.

Abstract Of Paper

This paper examines the profits of revenue, earnings, and price momentum strategies in an attempt to understand investor reactions when facing multiple information of firm performance in various scenarios. We first offer evidence that there is no dominating momentum strategy among the revenue, earnings, and price momentums, suggesting that revenue surprises, earnings surprises, and prior returns each carry some exclusive unpriced information content. We next show that the profits of momentum driven by firm fundamental performance information (revenue or earnings) depend upon the accompanying firm market performance information (price), and vice versa. The robust monotonicity in multivariate momentum returns is consistent with the argument that the market does not only underestimate the individual information but also the joint implications of multiple information on firm performance, particularly when they point in the same direction. A three-way combined momentum strategy may offer monthly return as high as 1.44%. The information conveyed by revenue surprises and earnings surprises combined account for about 19% of price momentum effects, which finding adds to the large literature on tracing the sources of price momentum.

Original paper – Download PDF

Here you can download the PDF and original paper of Does Revenue Momentum Drive or Ride Earnings or Price Momentum.

(An option to download will come shortly)

Author

Hong-Yi Chen
National Chengchi University – Department of Finance

Sheng‐Syan Chen
National Taiwan University – Department of Finance

Chin-Wen Hsin
Yuan-Ze University – Department of Finance

Cheng-Few Lee
Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics

Conclusion

In conclusion, this investigation into revenue, earnings, and price momentum strategies reveals a nuanced interplay of investor reactions in the face of multifaceted firm performance information. Contrary to a clear-cut dominance of one momentum strategy over the others, the findings suggest that revenue surprises, earnings surprises, and prior returns each contribute unique, unpriced information content.

Notably, the profitability of momentum driven by fundamental performance (revenue or earnings) is contingent on concurrent market performance information (price), and vice versa. This dynamic underscores the market’s tendency to underestimate not only individual information but also the joint implications of multiple performance indicators, particularly when aligned.

A three-way combined momentum strategy emerges as a potential avenue, offering a notable monthly return of up to 1.44%. The joint impact of revenue and earnings surprises constitutes a substantial portion, approximately 19%, of price momentum effects, adding valuable insights to the extensive literature on unraveling the roots of price momentum.

Related Reading:

A Smiling Bear in the Equity Options Market and the Cross-Section of Stock Returns

Overnight Return, the Invisible Hand Behind The Intraday Return? A Retrospective

FAQ

Q1: What is the main focus of the research paper “Does Revenue Momentum Drive or Ride Earnings or Price Momentum?”?

The research paper examines the profitability of momentum strategies based on revenue, earnings, and price in various market scenarios. It seeks to understand how investors react when faced with multiple sources of information regarding firm performance, exploring the intricate relationships between revenue momentum, earnings momentum, and price momentum.

Q2: What are the key findings regarding the dominance of momentum strategies?

Contrary to expectations, the study reveals that there is no overarching dominance among revenue, earnings, and price momentum strategies. Each of these momentum strategies carries unique, unpriced information content. The research challenges the notion of a one-size-fits-all momentum strategy and suggests that the market underestimates the joint implications of multiple performance indicators.

Q3: How does the research contribute to understanding the multifaceted origins of price momentum effects?

The study highlights the dynamic relationship between fundamental performance indicators (revenue and earnings) and market performance (price). The market tends to underestimate both individual information and the joint implications of multiple information sources, especially when they align in the same direction. The research introduces a three-way combined momentum strategy, incorporating revenue surprises, earnings surprises, and prior returns, which demonstrates a notable monthly return potential of up to 1.44%. The joint impact of revenue and earnings surprises accounts for about 19% of price momentum effects, adding valuable insights to the existing literature on the origins of price momentum.

Get All Stocks And Equities Research Papers Strategies here

Leave a Reply

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

Monthly Trading Strategy Club

$42 Per Strategy

>

Login to Your Account



Signup Here
Lost Password