On the Treatment of the Momentum Factor in Accounting-Based Anomalies: A Discussion

We survey the literature on anomalies in accounting research with a specific focus on whether and how they account for the momentum effect (Jegadeesh and Titman, 1993, 2001). Even though accounting academics recognize treatment of the momentum effect via inclusion in an extended Fama-French model to be appropriate, most extant empirical studies of accounting anomalies either do not account for the momentum effect or do so as a robustness check. Where included in the analysis, the momentum factor substantially reduces returns to portfolio strategies which exploit market underreaction. We argue that this treatment is in part due to the normal lag in the incorporation of research innovations but also likely due to persisting differences of opinion in the finance and accounting literature on whether to treat momentum as an anomaly or an asset pricing factor. More recent studies in accounting, however, seem to account for and treat the momentum effect more uniformly.