Persistence of Earnings Components and Price Momentum

47 Pages Posted: 24 Jul 2018 Last revised: 19 Nov 2019

See all articles by Fangming Xu

Fangming Xu

University of Bristol

Cheng (Colin) Zeng

Hong Kong Polytechnic University

Liyi Zheng

University of Bristol

Date Written: November 16, 2019


This study investigates whether the performance of stock price momentum is affected by factors associated with the persistence of earnings components. We find that stocks with high accruals (or low cash flows) generate higher momentum payoffs than low accruals (or high cash flows) stocks, and the additional momentum payoffs are mostly attributable to abnormal accruals and net distributions to equity. While our results primarily support the earnings fixation explanation, a momentum trading strategy based on the growth in net operating assets generates comparable profits. Lastly, the performance of our trading strategy based on a combination of price momentum and earnings components cannot be explained by limits to arbitrage or standard risk adjustments.

Keywords: Earnings components, Accruals, Cash flows, Momentum strategies

JEL Classification: M41, G12, G14

Suggested Citation

Xu, Fangming and Zeng, Cheng and Zheng, Liyi, Persistence of Earnings Components and Price Momentum (November 16, 2019). Available at SSRN: or

Fangming Xu

University of Bristol ( email )

School of Accounting and Finance
Marie Dutordoir
Bristol, BS8 1PQ
United Kingdom
+44(0)1173941503 (Phone)

HOME PAGE: http://

Cheng Zeng (Contact Author)

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Liyi Zheng

University of Bristol ( email )

United Kingdom
00441173941286 (Phone)


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