Volume 14, Number 4, 2016
Susana Yu and Gwendolyn Webb
We test whether price-based momentum strategies can be improved by additional screening based on fundamental measures. Within the framework of portfolio formation based on recent winning or losing stocks, we further screen on the basis of fundamental measures of financial strength and gross profitability. Our key results are that the performance of long–short, price-based momentum strategies can be significantly improved when either fundamental measure is employed as a second screen. Of these two measures, the more effective appears to be gross profitability. These results support the hypothesis that fundamental financial information can be used by investors to improve portfolio performance.