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Profitability of Price, Earnings and Revenue Momentum Strategies: The Indian Evidence

Author

Listed:
  • Sanjay Sehgal

    (Department of Financial Studies, University of Delhi, Ba/17c, Ashok Vihar, Phase I, Delhi-52, India)

  • Kanu Jain

    (Shri Ram College of Commerce, University of Delhi 4688, Umrao Singh Street, Pahari Dhiraj, Delhi-6, India)

Abstract

Momentum has remained an unsettled anomaly in finance. In this paper, we examine the profitability of univariate and multivariate sorted momentum strategies based on prior returns, earnings surprises and revenue surprises using the data for 493 companies that form part of Bombay Stock Exchange (BSE) 500 index in India from January 2002 to June 2010. Momentum profits are found to be persistent in the intermediate horizon (up to six months). Price momentum winners provide higher returns vis-Ã -vis earnings and revenue momentum winners. On long-short basis, earnings momentum strategy is most profitable. Earnings momentum is able to subsume price and revenue momentum. Further, the informational content of revenue surprises is incrementally very small. Triple sorted momentum portfolio using all the three criteria provides the highest return of 2.28% per month. The Capital Asset Pricing Model (CAPM) and the Fama-French model fail to explain these returns. The post-holding analysis reveals strong overreaction patterns for both winners as well as losers, thus, supporting the behavioural explanation. Momentum winners and losers perform better during market upturns. This study contributes to the asset pricing and behavioral finance literature especially for emerging markets such as India.

Suggested Citation

  • Sanjay Sehgal & Kanu Jain, 2015. "Profitability of Price, Earnings and Revenue Momentum Strategies: The Indian Evidence," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 11(1), pages 1-47–84.
    • Handle: RePEc:usm:journl:aamjaf01101_47-84
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    Cited by:

    1. repec:grz:wpsses:2020-04 is not listed on IDEAS
    2. Fink, Josef, 2021. "A review of the Post-Earnings-Announcement Drift," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    3. Tarunika Jain Agrawal & Sanjay Sehgal & Vibhuti Vasishth, 2020. "Firm Attributes, Corporate Fundamentals and Investment Strategies: An Empirical Study for Indian Stock Market," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 45(3), pages 366-387, August.
    4. Yan Han & Xin Cui & Gloria Y. Tian & Peipei Wang, 2023. "Bayesian Investor Belief Updating Speed and Market Underreaction to Earnings Announcements," Australian Accounting Review, CPA Australia, vol. 33(1), pages 66-85, March.
    5. Gagan Sharma & Srividya Subramaniam & Sanjay Sehgal, 2021. "Are Prominent Equity Market Anomalies in India Fading Away?," Global Business Review, International Management Institute, vol. 22(1), pages 255-270, February.
    6. Simarjeet Singh & Nidhi Walia & Sivagandhi Saravanan & Preeti Jain & Avtar Singh & Jinesh jain, 2021. "Mapping the scientific research on alternative momentum investing: a bibliometric analysis," Journal of Economic and Administrative Sciences, Emerald Group Publishing Limited, vol. 38(4), pages 619-636, April.

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