A Study on the Earnings Momentum in China’s Stock Markets
Wen-Chyan Ke/Department of Finance and Cooperative Management National Taipei University
Chun-Kuei Hsieh/Department of International Business Tunghai University
Chang Chan/Department of Finance and Cooperative Management National Taipei University
Shang-Chieh Huang/Graduate Institute of Economics National Taiwan University
Abstract
This study examines the earnings momentum in China’s two stock markets. Namely,
after earnings are announced, the estimated cumulative abnormal returns ontinue to drift up for “good earnings news” firms and down for “bad earnings news” firms, which are listed in the Shanghai Stock Exchange or the Shenzhen Stock Exchange. Using the data of all listed firms in the two exchanges between 2005 and 2013, this study measures the earnings momentum and finds the following results. First, there exists the earnings momentum in both markets. The annualized rates of return on the zero-investment portfolios created based on the phenomena of earnings momentum for Shanghai and Shenzhen are 11% and 13%, respectively. This suggests that the earnings momentums in the two markets are both statistically and economically significant. Second, the stock prices in both markets respond early before the announcements. It may mean that there
exist the information leakages or some investors can make good predictions for earnings news in both markets. Third, both the magnitudes of the early respondences and the earnings momentum are stronger in Shenzhen than in Shanghai. Fourth, both the magnitudes of the early respondences and the earnings momentum are stronger in the Ashare prices than in the B-share prices. Fifth, the pattern of the earnings momentum in both markets during the financial crisis is different from the other periods.
Keywords
Earnings momentumChina’s stock marketA- and B-sharesFinancial crisis
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