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Insights into the Momentum Life Cycle for European Stocks

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Abstract

This article evaluates price and earnings momentum strategies constructed using either single or multiple criteria not only to establish how these strategies performed in the major European markets over the last 15 years but also to enhance our knowledge as to how to place a stock in its momentum life cycle. In terms of performance, we established that price momentum strategies outperformed earnings momentum strategies but that they complemented each other when combined. We also established means for enhancing both price and earnings momentum strategies and determined what combination of price momentum with enhanced earnings momentum produced the best results both at the country/region level and the aggregated level. These findings suggest that the earnings forecasts made by the equity analysts provide a good indication as to the positioning of a stock in its momentum life cycle. However, subsequent analysis established that this is only true for wining stocks and that these forecast provide no incremental information when it comes to predicting the future performance of losing stocks over the holding periods considered.

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  • Ron Bird & Lorenzo Casavecchia, 2006. "Insights into the Momentum Life Cycle for European Stocks," Published Paper Series 2006-3, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    • Handle: RePEc:uts:ppaper:2006-3
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    Cited by:

    1. Ron Bird & Lorenzo Casavecchia, 2007. "Sentiment and Financial Health Indicators for Value and Growth Stocks: The European Experience," The European Journal of Finance, Taylor & Francis Journals, vol. 13(8), pages 769-793.
    2. Timo H. Leivo, 2012. "Combining value and momentum indicators in varying stock market conditions," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 11(4), pages 400-447, October.
    3. Ron Bird & Xiaojun Gao & Danny Yeung, 2017. "Time-series and cross-sectional momentum strategies under alternative implementation strategies," Australian Journal of Management, Australian School of Business, vol. 42(2), pages 230-251, May.
    4. Timo H Leivo & Eero J Pätäri, 2011. "Enhancement of value portfolio performance using momentum and the long-short strategy: The Finnish evidence," Journal of Asset Management, Palgrave Macmillan, vol. 11(6), pages 401-416, February.

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