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Analysts' Underreaction and Momentum Strategies

SSRN Electronic Journal
2022
  • 0
    Citations
  • 1,745
    Usage
  • 17
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Usage
    1,745
    • Abstract Views
      1,258
    • Downloads
      487
  • Captures
    17
  • Ratings
    • Download Rank
      118,208

Article Description

I estimate a theory-based behavioral momentum using analysts' predictable (errors driven by) underreaction (APU) as a proxy for newswatchers underreaction. The results show that APU strongly predicts analysts' errors and, more importantly, stock returns. A long-short strategy based on APU generates a value-weighted Fama-French six-factor alpha of 0.85% per month (t-stat = 3.48). Furthermore, I propose an underreaction factor that subsumes the momentum factor in spanning tests and provide higher explanatory power for a wide range of return predictors. The results support behavioral explanations of the momentum effect and show that APU can better capture newswatchers' underreaction than traditional estimates.

Bibliographic Details

Vitor Azevedo

Elsevier BV

Analysts' predictable error; Analysts' forecasts; Momentum; Post-earnings announcement drift; Stock market anomaly

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