Hedge Funds and Earnings Momentum

Daniel T. Lawson

Abstract


This study determines if hedge funds take advantage of the earnings momentum anomaly. A five-factor model was used including Fama and French (1993) and Carhart (1997) factors as well as an earnings momentum factor based on Chordia and Shivakumar (2007). The average hedge fund does not take advantage of the post-earnings momentum drift; however, larger funds associated with equity long only and equity short bias strategies successfully arbitrage on the earnings anomaly, contributing 2-3% per year, respectively. In contrast, funds with event driven, fund timing, and convertible arbitrage strategies tend to employ a strategy opposite to that of the earnings momentum anomaly and suffer losses accordingly.


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DOI: https://doi.org/10.5539/ijef.v9n10p40

Copyright (c) 2017 Daniel Lawson

License URL: http://creativecommons.org/licenses/by/4.0

International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)  Email: ijef@ccsenet.org

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