Price Momentum, Earnings Forecasting, and Valuation: Implications for Inefficient Markets

Financial anomalies have been studied in the U.S. However, recent evidence suggests that what were initially identified as return anomalies have diminished in U.S. data. Have the identified regularities changed or are they persistent? Have historical and earnings forecasting data been a consistent and highly statistically significant source of excess returns? We test a number of financial anomalies of the 1980s–1990s and report that several models and strategies continue to produce statistically significant excess returns not absorbed by then-known factor models. We report that earnings forecasts, revisions, and breadth and price momentum have maintained their statistical significance during the May 1995–December 2017 time period. More importantly, we use expected return models and multi-factor models that are estimated and known at the start of our current analysis, assuring our readers of out-of-sample and post-publication verification of the models.