Prior research generally reports a positive relationship between firm-level accounting earnings surprises and contemporaneous stock prices, indicating that accounting earnings carry value-relevant information. Recent studies, however, show that investors respond negatively to unexpected changes...

We examine the time variations of expected momentum profits using a two-state Markov switching model with time-varying transition probabilities to evaluate the empirical relevance of recent rational theories of momentum profits. We find that in the expansion state the expected returns of winner...