The literature shows that price and earnings momentum returns cannot be fully explained by risk-based theories. In an attempt to better understand the price momentum anomaly, Chui et al. [2010] document that the cultural factor of-individualism‖ influences price momentum returns, but that the cultural factor of-uncertainty avoidance‖ does not. The current study extends Chui et al. [2010] by examining the influence of individualism and uncertainty avoidance on earnings momentum profits, as theory suggests that unique characteristics associated with earnings momentum, relative to price momentum, give rise to significant effects for both these cultural factors. Using data from 41 countries, we show that the level of individualism in a country is positively associated with earnings momentum profits and that the level of uncertainty avoidance is negatively associated with earnings momentum profits. This study contributes to the ongoing quest to better understand the earnings momentum phenomenon.
The literature shows that price and earnings momentum returns cannot be fully explained by risk-based theories. In an attempt to better understand the price momentum anomaly, Chui et al. [2010] document that the cultural factor of -individualism‖ influences price momentum returns, but that the cultural factor of -uncertainty avoidance‖ does not. The current study extends Chui et al. [2010] by examining the influence of individualism and uncertainty avoidance on earnings momentum profits, as theory suggests that unique characteristics associated with earnings momentum, relative to price momentum, give rise to significant effects for both these cultural factors. Using data from 41 countries, we show that the level of individualism in a country is positively associated with earnings momentum profits and that the level of uncertainty avoidance is negatively associated with earnings momentum profits.This study contributes to the ongoing quest to better understand the earnings momentum phenomenon.
We provide one of the first comprehensive studies on out-of-sample stock returns predictability in Australia. While most of the empirically well-known predictive variables fail to generate out-of-sample predictability, we document a significant out-of-sample prediction in forecasting ahead one-year and, to a lesser extent, one-quarter future excess returns, using a combination forecast of variables. We also find improved asset allocation using the combination forecast of these predictors. The combining methods are useful in predicting sector premia. Specifically, a sector rotation strategy relying on the combining methods outperforms the market by 3.27% per annum on a risk-adjusted basis.
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