The impact of earnings management on price momentum

In this dissertation I propose and test a new explanation for the price momentum anomaly: fundamental firm characteristics initially form price momentum portfolios, yet the return pattern is continued through earnings management. I find some evidence of earnings management being used to continue the return pattern of price momentum portfolios, yet not enough to explain the momentum anomaly. Namely, I find that discretionary accruals are positively and significantly predicted by past returns. However, contemporaneous returns are negatively correlated with discretionary accruals. Those price momentum firms that encounter changes in business conditions appear to be successful at misleading the market through earnings management.