By analyzing how stock prices respond to public news, this paper examines the momentum effect in the Korean stock market. It is true that, as a whole, the momentum strategy generates no profits in Korea. However, among the stocks in a momentum portfolio, loser stocks with news headlines make significantly positive profits caused by negative return drift. These positive profits are cancelled out by negative returns, due mostly to reversals exhibited by winner stocks with and without public news. These reversals stand in contrast to the case of the United States market, where winner stocks show weak drift (Chan, 2003). Reversals of news winners and the drift of news losers in Korea imply that stock prices react asymmetrically to public news, which is overlooked in existing studies on momentum. Further analyses indicate that this asymmetric reaction can be attributed to transaction costs rather than to the incentive of managers to disclose bad news slowly. In addition to the asymmetric reaction of prices to news, we suggest that market misperceptions concerning firms' future prospects may also be a reason for the post-news return patterns in Korea.