The Relationship between Earnings Momentum and Price Momentum in Different Market - The Case of the China Market

Jun-Biao Lin

Abstract


This study focuses on the stocks that are listed in A- and H-share markets from January 2000 to December 2009. Following Chan, Jegadeesh and Lakonishok (1996), we test the profitability of price momentum and earnings momentum strategies under different market systems and accounting standards. In addition, we also adopt the method documented by Chordia and Shivakuma (2006) to examine whether earnings momentum and price momentum are related.
The empirical results show that the price momentum effect has a significant and persistent phenomenon in H-share market instead of A-share market. Besides, the earnings momentum strategy would generate a significantly positive return in each market. This implies that the difference of accounting information content between the two markets does not inflect the profitability of earnings momentum strategy. Due to the price momentum strategy have an insignificant return in the A-share market, we only focus on the discussion of relationship between earnings and price momentum in H-shares. From the results, we find that price momentum is captured by the earnings momentum. The predictive power of past returns is subsumed by a strategy that buying the highest earnings surprise portfolio and selling the lowest earnings surprise portfolio.

Full Text: PDF DOI: 10.5430/ijfr.v4n4p72

Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.

International Journal of Financial Research
ISSN 1923-4023(Print) ISSN 1923-4031(Online)

 

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