White lie effects of information asymmetry on stock momentum

Huei-Hwa Lai; Szu-Hsien Lin

doi:10.1016/j.heliyon.2020.e03816

White lie effects of information asymmetry on stock momentum

Heliyon. 2020 Apr 28;6(4):e03816. doi: 10.1016/j.heliyon.2020.e03816. eCollection 2020 Apr.

Authors

Huei-Hwa Lai¹, Szu-Hsien Lin²

Affiliations

¹ Department of Business Administration, Chaoyang University of Technology, Taiwan, ROC.
² Department of Southeast Asian Economy, Trade and Digital Finance, TransWorld University, Taiwan, ROC.

Abstract

This paper aims to explore the relationship between information asymmetry and stock momentum. Using winner and loser approach, we find that winners with exaggerated forecast of earnings per share are more likely to have contrarian profits in subsequent holding periods. On the contrary, winners with low or middle-low information asymmetry tend to continue their good returns in future holding periods. In addition, the losers with middle information asymmetry achieve the highest contrarian profits, which may be called "white lie effects."

Keywords: Accounting; Behavioral economics; Contrarian profits; Corporate finance; Economics; Finance; Information asymmetry; International finance; Stock momentum; Trading strategy; White lie effects.