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Momentum Strategies

Louis K. C. Chan, Narasimhan Jegadeesh and Josef Lakonishok
The Journal of Finance
Vol. 51, No. 5 (Dec., 1996), pp. 1681-1713
Published by: Wiley for the American Finance Association
DOI: 10.2307/2329534
Stable URL: http://www.jstor.org/stable/2329534
Page Count: 33
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Momentum Strategies
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Abstract

We examine whether the predictability of future returns from past returns is due to the market's underreaction to information, in particular to past earnings news. Past return and past earnings surprise each predict large drifts in future returns after controlling for the other. Market risk, size, and book-to-market effects do not explain the drifts. There is little evidence of subsequent reversals in the returns of stocks with high price and earnings momentum. Security analysts' earnings forecasts also respond sluggishly to past news, especially in the case of stocks with the worst past performance. The results suggest a market that responds only gradually to new information.

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