The Comparative Analysis Of Earning Momentum In The U.S.'s Market

The Efficient Market Hypothesis(EMH)and Capital Asset Pricing Model(CAPM)have always played a pivotal role in the investment field of traditional finance.What's more,the no-arbitrage pricing theory,as well as the quantitative method,also provides more convenient method for financial products pricing,in the modern financial system.However,these basic theories,which can be called meteorites,gradually lose their effectiveness in the current financial market.These financial phenomena such as momentum effect,reversal effect,and herd effect become the norm,which makes various quantitative strategies useful and produces many financial products based on quantitative methods.The most popular strategies in the quant is the momentum strategy,which can be divided into price momentum and earning momentum according to the momentum factor.Early studies have confirmed the existence of price momentum,and subsequent studies have confirmed that earning momentum is more powerful and more useful than price momentum in prediction and application.The study of momentum strategy based on earning momentum and its application in financial markets are extremely important both in theoretical field and practical field.Based on the previous research,this paper discusses the explanatory power and predictive ability of earning momentum.On the one hand,we establish a new earning momentum strategy which based on a pure financial indicator(?ROE)and verify its profitability.On the other hand,we discusses the fact whether systematic information could bring additional profit on the basis of earning momentum strategy by using the residual analysis method,which can quantify the systematic information,considering the research of psychology and behavioral science on "irrational economic man".Finally,this paper conducts the optimized comparative study and compares the new earning momentum strategy with these mainstream strategies to explore whether this new strategy has superiority.In order to verify the universality of the new earning momentum strategy,this paper also constructs a similar momentum investment strategy,which based on ?GPA,in the same construction method to explore its superiority,after studying the earning momentum strategy based on ?ROE.In summary,this research is significant both in the theoretical field and practical field in regards of the dynamic momentum strategy and the application in the financial markets.This paper summarizes the research on momentum both at home and abroad.What's more,this paper discuss the existence and profitability of price momentum and earning momentum in the US stock market,based on the data of the US stock market from January 1972 to December 2016 and the financial data of listed companies.A comparative analysis of several current momentum strategies is also conducted in this paper,and leads to the following conclusions:(1)Earning momentum does exist in the US stock market and brings excess returns,when strategy is based on these earning momentums like CAR3,?ROE etc.What's more,the CAR3-based earning momentum strategy has the highest return stability whose T value can reach 3.35,although the traditional value strategy can achieve the highest market-weighted rate of return which reaches 0.623% and excess all earning momentum strategy.(2)There is a systemic factor in the price momentum strategy,which can be used to build a portfolio and brings excess returns.In addition,earning momentum is more pure than the price momentum which is easily influenced by human factors.These systematic behavioral factors and psychological factors can bring objective excess returns,although the components cannot be affirmed.(3)The earning momentum constructed by pure financial indicators has a higher and stable return.Among them,the strategic return of CAR3 and SUE is derived from the contribution of the winner,while the return of the ?ROE and ?GPA strategies is more due to the low return rate of the loser.In addition,?ROE and ?GPA have a higher return on investment than CAR3 and SUE.Taking the full sample as an example,the return rate of the ?ROE strategy can reach 0.430%,and the return rate of ?GPA can reach 0.470%,both of which exceeds the return of the CAR3-based strategy and the SUEbased strategy.(4)The emotional index will affect the return rate of the momentum investment strategy.In the further exploration of systematic information,this paper finds that emotions will affect the return rate of each momentum strategy return.When the mood is high,the strategy rate of return is significantly positive,and when the mood is low,the strategy does not have significant rate of return.However,both the high-emotion period and the low-emotion period,the ?ROE and ?GPA strategies are superior.