Earnings-Surprise Momentum
NO EDGEBoth prior price performance and prior earnings news predict subsequent returns. Sorting on earnings surprises provides a momentum signal distinct from price-only momentum.
| THE STRATEGY | $SPX BUY & HOLD | |
|---|---|---|
| Growth a year (CAGR) | 2.3% | 12.6% |
| Return per unit of risk (Sharpe) | 0.22 | 0.90 |
| Worst fall (max drawdown) | -51.9% | -24.8% |
// GROWTH OF $1, LOG SCALE
Tested on years it never saw (from the split): -0.0% a year against 12.4% for the benchmark; Sharpe 0.50 in the training years, 0.12 after.
After 25 bps of trading costs: 0.5% a year. BELOW RANDOM
// DECADE BY DECADE
| ERA | STRATEGY | BENCHMARK |
|---|---|---|
| 2010s | 7.5% | 11.6% |
| 2020s | -5.1% | 14.1% |
// THE IDEA, AS PUBLISHED
Louis K. C. Chan, Narasimhan Jegadeesh & Josef Lakonishok (1996), Momentum Strategies, The Journal of Finance · 1996
- Measure earnings news three ways: SUE, announcement abnormal return, analyst forecast revisions
- Sort stocks into equal-weighted deciles on each measure and on prior 6-month return
- Long top decile, short bottom; track returns over the next 6 and 12 months
A real computation on the QuantGPT warehouse, survivorship-free, walk-forward. Gross returns, no costs except where stated. Past performance is not a promise. Findings, not advice. COMPUTED 2026-09-24 19:41 ON THE QUANTGPT WAREHOUSE: EVERY DELISTED NAME KEPT, FUNDAMENTALS AS FILED. NOT INVESTMENT ADVICE.