The gambler's fallacy [Rabin, M. 2002. Inference by believers in the law of small numbers. <i>Quart. J. Econom.</i> <b>117</b>(3) 775-816] predicts that trends bias investor expectations. Consistent with this prediction, we find that investors underreact to streaks of consecutive earnings surprises with the...

We demonstrate that stock price momentum and earnings momentum can result from uncertainty surrounding the accuracy of cash flow forecasts. Our model has multiple information sources issuing cash flow forecasts for a stock. The investor combines these forecasts into an aggregate cash flow...