Momentum and Earnings Information in the Korean Stock Market

Abstract

This study examines whether price momentum profit is related to earnings information in the Korean stock market. Through time-series and cross-sectional asset pricing tests, we find that price momentum profits are captured by return on equity; an earnings surprise or revenue surprise partially explains price momentum. The risk-based factor models cannot explain the existence of earnings-based momentum, because an earnings-based zero-investment portfolio is significantly negatively related to future macroeconomic variables such as gross domestic product and real consumption growth. On the other hand, the underreaction hypothesis is also not sufficient to explain why earnings-based momentum seems to capture price momentum.