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The fundamentals of momentum investing: European evidence on understanding momentum through fundamentals

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  • Christian Walkshäusl

Abstract

This paper tests Ahmed and Safdar's noise‐related fundamentals‐based explanation for the momentum premium in European equity markets. Consistent with the view that past price changes may be partially driven by noise, the future return behaviour of winners and losers is significantly dependent upon the degree to which past price performance is consistent with fundamentals. European momentum profits are concentrated among those firms where past price performance is congruent with fundamentals, but absent among those firms where past price performance is incongruent with fundamentals. The significantly different momentum premiums on congruent and incongruent fundamentals‐momentum strategies are attributable to the exploitation of existing mispricing among momentum stocks that can be ex ante identified using firm fundamentals.

Suggested Citation

  • Christian Walkshäusl, 2019. "The fundamentals of momentum investing: European evidence on understanding momentum through fundamentals," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 59(S1), pages 831-857, April.
    • Handle: RePEc:bla:acctfi:v:59:y:2019:i:s1:p:831-857
    DOI: 10.1111/acfi.12462
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