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The explanatory power of representative agent earnings momentum models

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Abstract

This paper examines the predictive performance of two representative agent models of earnings momentum using the US S & P 500 sample frame in the years 1991–2006. For successive sequences of quarterly earnings outcomes over a three year horizon of quarterly increases/decreases, etc., we ask whether these models can capture the likelihood of reversion and, secondly, the stock market response to observed quarterly earnings change sequences for our chosen sample. We find evidence of a far greater frequency of persistent quarterly earnings rises and hence a more muted reaction to their occurrence. Persistent losses are both far less common and more salient in their impact on stock prices.

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Notes

  1. http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/datalibrary.html

  2. Da et al. (2012) report a mean value of ID z of −0.034 and a median value −0.031 for the sample in Table 1 of their paper

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Authors and Affiliations

  1. Loughborough School of Business and Economics, Loughborough University, Loughborough, LE11 3TU, UK

    William Forbes

  2. School of Management and Business, Aberystwyth University, Aberystwyth, SY23 3DD, UK

    Aloysius Igboekwu

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  1. William Forbes
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  2. Aloysius Igboekwu
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Correspondence to William Forbes.

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Forbes, W., Igboekwu, A. The explanatory power of representative agent earnings momentum models. Rev Quant Finan Acc 44, 473–492 (2015). https://doi.org/10.1007/s11156-013-0414-4

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