White lie effects of information asymmetry on stock momentum

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

• Information asymmetry
• Stock momentum
• Contrarian profits
• Trading strategy
• White lie effects
• Economics