Idiosyncratic momentum and the cross‐section of stock returns: Further evidence

Abstract

In this article, we evaluate the profitability and economic source of the predictive power of the idiosyncratic momentum effect, by using five popular asset pricing models to construct the idiosyncratic momentum. We show that all five idiosyncratic momentum strategies produce similar return predictability and consistently outperform the conventional momentum strategy in the cross-sectional pricing of equity portfolios and individual stocks. This positive effect of idiosyncratic momentum on returns is consistent with the investment capital asset pricing model (CAPM). Further analysis reveals that the firmlevel idiosyncratic momentum effect cannot extend to the aggregate stock market.

Mapping the scientific research on alternative momentum investing: a bibliometric analysis

“…These findings are interesting as most academic studies report insignificant momentum effect in Southeast Asian countries. In addition, recent studies employ five-factor Fama-French model instead of the three-factor model to compute residual or idiosyncratic returns (Lin, 2020; Blitz et al , 2020; Page et al , 2020). Consistent with earlier studies, these studies also report the dominance of residual momentum strategies over traditional momentum approaches, both in terms of risk and return.…”