Journal of Banking and Finance
asset pricing, cash flow news, market efficiency, momentum
Business | Finance and Financial Management
We examine the effect of aggregate cash flow news and discount rate news on momentum returns. We find that momentum profits are higher following aggregate positive cash flow news, even in down markets or low sentiment periods. This finding expands on the evidence in Cooper et al. (2004) that momentum is significant only when past market returns are non-negative and in Antoniou et al. (2013) that momentum is weaker when sentiment is pessimistic. We find that the higher momentum profits during aggregate positive cash flow news periods are primarily driven by the losers continuing to underperform in subsequent periods. Our findings are consistent with the Hong and Stein (1999) model in the sense that gradual diffusion of contradictory news is accentuated when change in wealth is positive and relatively more permanent.
Celiker, Umut; Kayacetin, Nuri Volkan; Kumar, Raman; and Sonaer, Gokhan, "Cash Flow News, Discount Rate News, and Momentum" (2016). Business Faculty Publications. 260.
NOTICE: this is the author’s version of a work that was accepted for publication in the Journal of Banking and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in the Journal of Banking and Finance, 72, 11-01-2016, 10.1016/j.jbankfin.2016.07.016