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영어

This study examines the momentum returns conditional on fundamental (cash-flow news and discount rate news) and non-fundamental news states in Chinese stock market (Shanghai Stock Exchange and Shenzhen Stock Exchange). Also, we analyze the momentum returns conditional on up markets, fundamental news and non-fundamental news. According to Lee (1998) and Wu et al. (2019, 2021), we use the log-linear structural vector auto-regression (SVAR) model to decompose unexpected market excess returns into fundamental news (i.e. temporary cash-flow news, permanent cash-flow news and discount rate news) and non-fundamental news instead of Celiker et al.’s (2016) log-linear vector auto-regression (VAR) model. Celiker et al.’s (2016) news decomposition method using the log-linear vector autoregressive model has the disadvantages as follows. Firstly, it fails to estimate cash-flow news and discount rate news accurately because there exists a correlation between two news. Secondly, it can’t decompose cash-flow news into permanent cash-flow news and temporary cash-flow news. Finally, there also exists the limitation that non-fundamental news cannot be estimated. The empirical results are as follows. When not considering both news situation and market situation, we find that there are no significant momentum returns in Chinese stock market. Moreover, momentum portfolio is not profitable during the cash-flow and discount rate news states. This is different from the findings of Celiker et al. (2016), who analyzed the US stock market. Dividend policy serves as an important signal in the US stock market. Therefore, investors can be sensitive to cash flow news, resulting in strong momentum effect under the cash flow news states. However, enterprises in China focus more on reinvestment rather than dividends, so they show relatively low dividend propensity and weak degree to which dividend serves as a signal to future profitability. Thus, momentum returns from cash flow news are not significant in Chinese stock market. However, momentum portfolio returns are significantly positive in non-fundamental news states. Non-fundamental factors can be seen as the psychological factors of noise traders according to Barberis et al. (1998). There are a high proportion of individual investors in Chinese stock market and investor sentiment has a greater impact on stock returns than fundamental factors in the Chinese stock market. The psychological factors of noise traders may result in the momentum effect. Therefore, in the Chinese market, under the non-fundamental news, momentum profitability can appear. Finally, mean momentum portfolio returns is significantly higher conditional on non-fundamental news states during up markets, which is consistent with the results of Cooper et al. (2004). In other words, investors tend to be overconfident when the market is on the rise, which causes a strong momentum effect.