Abstract
Using trends in firm fundamentals, we find that there is a fundamental momentum in the stock market. Buying stocks in the top quintile of fundamental trends and selling stocks in the bottom earns a monthly average return of 0.85%, comparable to price momentum. Combining both price and fundamental momentum produces a twin momentum, which earns an average return that exceeds their sum and is difficult to explain by short-sell impediments. Our results not only support the view that fundamental analysis is as important as technical analysis, but also indicate that trends contain incremental information beyond often used lagged fundamental predictors.
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