Earnings Momentum Retesting From The Perspective Of Comprehensive Information

With increasing attention paid to behavioral finance,the momentum phenomenon in stock market has also been followed with wide interests.Considering the earnings momentum phenomenon being long regarded as the reason for the price momentum,this article,therefore,based on four earning researches of earnings momentum index conducted by Louis KC Chan,Narasimhan Jegadeesh,and Josef Lakonishok(1996)on four standardized earnings(SUE),four-day abnormal earnings(ABR),six-month analyst forecasts revision(REV6)and earnings for the past six months(R6),reevaluates the profit estimation capacity of earnings momentum by means of Jegadeesh and Timan's(1993)investment group method,and in addition,forms another five new model using the method of extracting principal components under the perspective of comprehensive information.In this paper,the common shares of the New York Stock Exchange(NYSE),the American Stock Exchange(AMEX)and the Stock Exchange(NASDAQ)are taken as the main research object.The earning capacity of earnings momentum and forecasting ability of four original indexes and five new models before and after information synthesis are compared.It was found that the new model,which extracted the principal components of ABR,R6 and SUE,R6 by comparison with the original index,not only improved the return,but also improved the stability of the model.In addition,the ability of predicting future earnings witnesses great improvement.This finding confirms the practicality of using the principal components extracted variables to solve the problem of information overlap,which is also the most valuable discovery in this dissertation.In order to betters illustrate the differences of the earnings momentum phenomenon in Chinese and American stork markets,this paper conducts the same research on the common stock market in China,and finds that there is almost no earnings momentum phenomenon in the Chinese stock market compared with the developed American stock market,which may be due to the different characteristics of the stock markets of China and the United States.Another important finding is that the effect of price momentum is entirely based on the effect of earnings momentum.The release of earnings announcement information will stimulate the price of market transactions and thus trigger the price momentum.