Essay 1 Abstract Prior research indicates that equity markets assign a higher valuation to firms that sustain a string of earnings increases (earnings string) and a string of meeting or beating analysts’ earnings expectations (MBE string). However, to date, there is little evidence on the response of debt investors when firms sustain a long string of meeting/beating earnings benchmarks. This study fills the gap in the literature by analyzing the impact of sustaining an earnings string/MBE string on the cost of debt. I find evidence of a positive (negative) association between the length of the earnings string/MBE string and the bond yield spreads (credit ratings). These results suggest that debt holders assess a higher risk to firms that sustain a string of earnings benchmarks and require a higher risk premium, contrary to equity holders, who reward firms that sustain a string of earnings benchmarks. Additional analyses indicate that this discrepancy is attributable to the different investor compositions between debt and equity markets. Essay 2 Abstract This study extends the existing literature by investigating the impact of sustaining a string of earnings increases (earnings string) on stock returns using the time-series asset pricing approach. Using both Fama-French (1993) three-factor and Carhart (1997) four-factor models, I find that the average abnormal return of a zero investment arbitrage portfolio that longs the highest earnings string portfolio and shorts the lowest earnings string portfolio is approximately negative 65 (75) basis points per month. These results provide further insight into the existing literature by demonstrating that earnings string firms initially experience higher stock returns. However, as earnings strings become longer, the market reaction becomes weaker.

This thesis examines if price momentum and momentum in firm fundamentals measured by earnings and revenue momentum are related on the Swedish stock market. Price momentum is measured through the 11-month prior performance (11MPM), Earnings Momentum through Standardized Unexpected Earnings (SUE), and Revenue Momentum through Standardized Unexpected Revenue Growth (SURGE). Using firm-level data from 2007 until 2024, zero-investment momentum strategies are established and show significant returns not explained by any conventional asset pricing model. There is a strong dominance of the earnings momentum strategy, by wide margin outperforming both price and revenue momentum. The abnormal price momentum profits disappear when controlling for earnings momentum returns, whereas the returns to earnings momentum remain robust after controlling for the price momentum. These results support the claim that price momentum is a weak manifestation of fundamental momentum. The revenue momentum returns are not explained by earnings momentum, which indicates that these performance metrics contain exclusive information about the fundamental performance of a firm.

This thesis examines the response of a representative agent investor to sequences (streaks) of quarterly earnings surprises over a period of twelve quarters using the United States S&P500 constituent companies sample frame in the years 1991 to 2006. This examination follows the predictive performance of the representative agent model of Rabin (2002b) [Inference by believers in the law of small numbers. The Quarterly Journal of Economics. 117(3).p.775 816] and Barberis, Shleifer, and Vishny (1998) [A model of investor sentiment. Journal of Financial Economics. 49. p.307 343] for an investor who might be under the influence of the law of small numbers, or another closely related cognitive bias known as the gambler s fallacy. Chapters 4 and 5 present two related empirical studies on this broad theme. In chapter 4, for successive sequences of annualised quarterly earnings changes over a twelve-quarter horizon of quarterly earnings increases or falls, I ask whether the models can capture the likelihood of reversion. Secondly, I ask, what is the representative investor s response to observed sequences of quarterly earnings changes for my S&P500 constituent sample companies? I find a far greater frequency of extreme persistent quarterly earnings rises (of nine quarters and more) than falls and hence a more muted reaction to their occurrence from the market. Extreme cases of persistent quarterly earnings falls are far less common than extreme rises and are more salient in their impact on stock prices. I find evidence suggesting that information discreteness; that is the frequency with which small information about stock value filters into the market is one of the factors that foment earnings momentum in stocks. However, information discreteness does not subsume the impact of sequences of annualised quarterly earnings changes, or earnings streakiness as a strong candidate that drives earnings momentum in stock returns in my S&P500 constituent stock sample. Therefore, earnings streakiness and informational discreteness appear to have separate and additive effects in driving momentum in stock price. In chapter 5, the case for the informativeness of the streaks of earnings surprises is further strengthened. This is done by examining the explanatory power of streaks of earnings surprises in a shorter horizon of three days around the period when the effect of the nature of earnings news is most intense in the stock market. Even in shorter windows, investors in S&P500 companies seem to be influenced by the lengthening of negative and positive streaks of earnings surprises over the twelve quarters of quarterly earnings announcement I study here. This further supports my thesis that investors underreact to sequences of changes in their expectations about stock returns. This impact is further strengthened by high information uncertainties in streaks of positive earnings surprise. However, earnings streakiness is one discrete and separable element in the resolution of uncertainty around equity value for S&P 500 constituent companies. Most of the proxies for earnings surprise show this behaviour especially when market capitalisation, age and cash flow act as proxies of information uncertainty. The influence of the gambler s fallacy on the representative investor in the presence of information uncertainty becomes more pronounced when I examine increasing lengths of streaks of earnings surprises. The presence of post earnings announcement drift in my large capitalised S&P500 constituents sample firms confirms earnings momentum to be a pervasive phenomenon which cuts across different tiers of the stock markets including highly liquid stocks, followed by many analysts, which most large funds would hold.

This dissertation consists of two essays: one looks at the time-varying relationship between earnings and price momentum, and the other looks at how liquidity and transparency affect the pricing differential between Chinese A-and Hong Kong H-share. The first essay presented in Chapter I investigates the time varying relationship between earnings momentum and price momentum. Using a Markov-switching framework, allowing for variation between high volatility and low volatility states, I find that price momentum is significantly more influenced by earnings momentum in the high volatility state. Further for price momentum I find that loser firms display a higher degree of differential response to earnings momentum across the low and high volatility states than winner firms. Limited financing and investor’s sensitivity to future investment opportunities might explain these two results. A further analysis indeed indicates that loser firms tend to be more financially constrained. Additionally, I investigate the relationship between investor sentiment and the two momentums and find that sentiment only has predictive power for price momentum profits in the low volatility state. Finally, the results are robust regardless of instrument variables. The second essay presented in Chapter 2 examines the impact of liquidity and transparency on the discount attached to H-shares from 2003 to 2011. The higher the relative illiquidity of an H-share, the more the H-share is discounted relative to the underlying A-share price. In addition, more actively traded A-shares and infrequently traded H-shares are associated with a higher H-share discount. Further, increases in the number of analysts following a firm, both in the A-and H- market, are accompanied by a lower H-share discount. Also, a firm with a higher percentage of A-share holdings by mutual funds is associated with a smaller H-share discount. Overall, the results provide support for the notion that liquidity and transparency affect the relative pricing of A- and H-shares.

The study examined the momentum in the fundamentals of companies over time, and whether the information content in the momentum of the fundamentals improved the understanding of the long-standing price momentum and earnings momentum anomalies on the Johannesburg Stock Exchange (JSE). Fundamental momentum is defined as the difference between the change of a fundamental variable over consecutive time periods. The study included all industrial companies that were listed on the JSE between the period January 1990 and December 2013. The purpose of the study was to investigate whether price momentum or earnings momentum was subsumed by fundamental momentum. Price momentum and earnings momentum are long-standing anomalies that have been widely researched, yet no definitive explanation has been provided in the literature. The objective of the study was to improve the understanding of price momentum and earnings momentum through the analysis of fundamental momentum. The study also provided insight into the persistence of fundamental momentum of earnings. The study tested the profitability of the price momentum, earnings momentum and the fundamental momentum of earnings trading strategies. The research hypotheses were formulated and tested using equal-weighted sort analysis. The sustainability of fundamental momentum of earnings was also analysed. The size and value risk factors were taken into account to ensure that the results were not influenced by such risk factors. The Fama and French three-factor model was employed to test whether the results captured one of these risk effects. The fourth research question investigated whether the fundamental momentum of an underlying component of earnings increased the persistence of the fundamental momentum of future earnings. Earnings were shown to be mean reverting over time, and therefore, the expectation was that positive or negative fundamental momentum of earnings was not sustainable over a prolonged period of time. However, by decomposing earnings into the accrual and cash flow components, and their respective sub-components, the study undertook regression analysis to see whether a specific component of earnings could improve the sustainability of fundamental momentum. The final research question tested whether price momentum and/or earnings momentum was subsumed by fundamental momentum. Two-way analysis was conducted to test whether the strategies captured similar effects. Sort analysis was used by first constructing equal-weighted portfolios based on either price momentum or earnings momentum. Each portfolio was then further subdivided based on the fundamental momentum of earnings. The profitability of the resultant portfolios was then compared with the initial portfolio. The results confirmed that the price momentum and earnings momentum anomalies were present on the JSE for the sample selected for the study. The fundamental momentum of earnings trading strategy was also shown to be a profitable trading strategy for the extreme quintile portfolios. Using the Fama-MacBeth regression methodology, size and value effects were not found to impact the results across all three momentum strategies. A behavioural overreaction or underreaction hypothesis was argued to explain the profitability of the fundamental momentum of earnings strategy. The market was shown to anticipate the earnings surprise that resulted in earnings momentum up to 12 months prior to portfolio formation. Similarly, the market anticipated fundamental momentum of earnings 12 months prior to the earnings announcement. The fundamental momentum of future earnings was shown to be more sustainable when the fundamental momentum of the cash flow component of prior earnings was higher than the fundamental momentum of the accrual component of prior earnings. This result did not give insight into the nominal size effect of the underlying earnings components, rather, it only gave insight into the rates of change of the earnings components. The final result of the study showed that price momentum and fundamental momentum captured different effects. However, the earnings momentum and fundamental momentum results were not as clear cut. Both strategies used a variant of earnings to construct the quintile portfolios and thus it was very plausible that they captured a similar effect. The study contributed to the current literature in a number of ways. A new trading strategy based on the fundamental momentum of earnings was tested. Fundamental momentum of earnings as a trading strategy has yet to be defined; as a result, it has not been researched prior to this study. Given the results, it may be seen as a derivative of earnings momentum. Understanding the sustainability of fundamental momentum of future earnings was also researched. The final contribution of the study was the two-way analysis of price momentum and fundamental momentum, and earnings momentum and fundamental momentum. / Thesis (PhD)--University of Pretoria, 2016. / tm2016 / Financial Management / PhD / Unrestricted

在國人愈來愈重視投資理財的今日，股票已成為全民熱烈參與的運動。國外的研究中發現，股票市場中常會存在追高殺低的情況，也就是報酬好的股票可能會有持續良好的表現。然而，此種報酬的持續現象是否也同樣存在於國內，這正是本研究所探討的主題之一。 　　此外，與盈餘相關訊息（如非預期盈餘、盈餘發佈日前後數日的異常報酬及分析師對盈餘預測的修正程度等）對未來股票報酬的影響程度究竟如何，則是本研究的另一個主題。 　　研究樣本取樣自民國82年至86年底之台灣上市公司股價及盈餘相關資訊進行實證分析。實證結果如下： 1. 在股票報酬持續效果研究上，股價有過度反應的現象，因而在六個月 後的報酬情況有回歸平均的情形，也就是說前六個月的報酬較佳的股票在六個月後的報酬將會較低。然而，一年後乃至於三年後過去報酬較好的股價仍然能有較好的報酬。可見在台股中股價仍然存在有延續的現象。 2. 有關非預期盈餘對未來報酬影響情況的研究部份，此一訊息的延續效果大約有二年期間，隨著各項與盈餘有關訊息的發佈，將使得非預期盈餘的幅度愈來愈小，終至不具影響力。 3. 盈餘發佈日前後的異常報酬因為僅以四天的股價異常報酬做為盈餘的替代指標，所含資訊內容有限，因而使得其影響效果存續期間非常地短暫。實證結果發現在六個月內具有持續效果，超過六個月後，這項訊息將不再具有影響能力。 4. 至於分析師對國內上市公司盈餘預測的實證研究中，我們發現如果分析師對於某一家公司的盈餘預測修正幅度愈大，其未來的股價報酬將愈不理想。 5. 綜合來說，股價的持續效果比盈餘訊息對股價報酬的影響效果更為明顯；而非預期盈餘是一項不錯的選股指標。結合過去六個月的股價報酬及非預期盈餘來選擇一、二年期的投資標的是一項很有效的選股方式。 目 錄 第一章 緒論 1 第一節 研究背景與動機 1 第二節 研究目的與重要性 2 第三節 研究架構 3 第二章 相關文獻探討 5 第一節 投資報酬之影響因素 5 第二節 價格的持續效果 6 第三節 盈餘對股價影響效果的持續性 8 第三章 研究方法 12 第一節 研究假設 12 第二節 研究期間、對象與資料來源 12 第三節 研究設計 13 第四節 研究流程 21 第四章 實證結果與分析 22 第一節 過去六個月報酬影響未來報酬程度分析 22 第二節 非預期盈餘的高低對未來報酬影響情況分析 28 第三節 累計異常報酬對未來報酬的影響效果分析 33 第四節 分析師修正盈餘預測幅度對股票未來報酬的影響研究 39 第五節 價格持續效果及盈餘持續效果比較分析 44 第五章 結論與建議 46 第一節 研究結論 46 第二節 後續研究建議 47 參考文獻 49 / Nowadays, people in Taiwan lay more emphases on investment and financing. They take part in investing in the stock market passionately. Research from overseas studies find that there is a phenomenon, “momentum effect” exists in the stock market. That is the reason why good-performance stocks could keep performing well. Whether the phenomenon exists in Taiwan, too? This is one of the topics of this research. 　　Moreover, how does the information about earnings, such as unexpected earnings, abcdrmal return around the earnings announcement and the changes of analysts’ forecasts on earnings, influence stock performance in the future? This is the other topic of this paper. 　　Samples from published corporate stock prices and information about earnings during 1993 to 1997 was used in this paper to do the research. The followings are five positive outcomes. 1. In the research of price momentum effect, the stock price had overreacted. It means that the mean-reversion condition existed in six months. However, the stock with good performance in the past six months would still have better return in one to three years. Therefore, we find that price momentum does exist in Taiwan stock market. 2. How did the effect of unexpected earnings on future return? We find that the effect of standardized unexpected earning would last for two years approximately. As the information of earnings was declared, the effect of unexpected earnings would drop. 3. The information was limited because of using abcdrmal return around announcement as the substitution of earnings. So, the effect of it would last for the short time. The positive outcome found that the abcdrmal return around earnings announcement did have influence in six mouths, but it took seldom effect over six months. 4. The last research was about the changes on analysts’ forecasts. We found that if the analyst made more correction on earnings forecast, the stock price would have poor performance in the future. 5. In general, the price momentum effect tends to be stronger and longer-lived than the earnings momentum effect. It would be an effective way to choose good-performance stocks in one to two years by the past-six-months performance and standardized unexpected earnings.

本論文為驗證台灣股市是否存在價格持續性或盈餘持續性的現象；再驗證不同股票投資風格（如大型股與小型股、成長型股票與價值型股票），加上價格持續性組成投組後是否也存在動能持續現象；價格持續性和盈餘持續性是否相關；以及加入盈餘品質後，價格持續性及盈餘的持續的效果如何，並依此建構投資策略，測試是否可以在台灣股市獲取超額報酬。 本研究的實證結果可歸納為以下4點： 一、台灣股市存在股價動能效果及盈餘動能效果。 過去六個月表現好的投組，未來6個月及1年都有較佳的表現，投組形成後4年，即有明顯的回歸平均的現象。未預期盈餘高的投組在未來6個月到4年的報酬率都較高。不論是價格持續性或盈餘持續性，投組形成後6個月的動能持續現象較強，因此投組形成後1年的持續效果可能來自前6個月的貢獻。至於分析師盈餘預測修正幅度，投組形成後正向修正幅度大的投組，未來的股價表現反而不佳，統計檢定的效果也不顯著，顯示國內若要以分析師對盈餘預測的修正幅度來做為盈餘持續性的代理變數，盈餘預測的品質還尚待加強。 二、權益帳面價值對市值比及市值與價格持續性的關係。 權益價值對市值比較高的價值型股票及市值較小的小型股，未來報酬的表現情形都較成長股及大型股佳，且過去6個月表現好的投組，未來的表現也比較好。但在投資大型股時，過去6個月報酬影響未來報酬程度較大。 三、價格持續性與盈餘持續性的關係。 標準化後未預期盈餘高的投組表現通常會比較好，但未預期盈餘低且過去6個月報酬率高的投組，仍有可能會替投資人帶來極高的報酬。 四、盈餘品質與價格持續性及盈餘持續性的關係。 盈餘品質（EQ）高的投組通常表現會比較好，但不論EQ高低，短期價格及盈餘持續性現象都存在。而EQ較低的股票，之後一但股票報酬持續表現良好，投資人也會修正對該公司的評價，有過度反應的情形發生，導致未來的報酬率較高。