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...

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...