Analysts' Underreaction and Momentum Strategies
SSRN Electronic Journal
2022
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- 17Captures
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Example: if you select the 1-year option for an article published in 2019 and a metric category shows 90%, that means that the article or review is performing better than 90% of the other articles/reviews published in that journal in 2019. If you select the 3-year option for the same article published in 2019 and the metric category shows 90%, that means that the article or review is performing better than 90% of the other articles/reviews published in that journal in 2019, 2018 and 2017.
Citation Benchmarking is provided by Scopus and SciVal and is different from the metrics context provided by PlumX Metrics.
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.
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