Weekly Idiosyncratic Risk Metrics and Idiosyncratic Momentum: Evidence from the Chinese Stock Market

Abstract

This paper focuses on the weekly idiosyncratic momentum (IMOM) as well as its risk-adjusted versions with respect to various idiosyncratic risk metrics. Using the A-share individual stocks in the Chinese market from January 1997 to December 2017, we first evaluate the performance of the weekly momentum and idiosyncratic momentum based on raw returns and idiosyncratic returns, respectively. After that the univariate portfolio analysis is conducted to investigate the return predictability with respect to various idiosyncratic risk metrics. Further, we perform a comparative study on the performance of the IMOM portfolios with respect to various risk metrics. At last, we explore the possible explanations to the IMOM as well as risk-based IMOM portfolios. We find that 1) there is a prevailing contrarian effect and a IMOM effect for the whole sample; 2) a negative relation exists between most of the idiosyncratic risk metrics and the cross-sectional returns, and better performance is found that is linked to idiosyncratic volatility (IVol) and maximum drawdowns (IMDs); 3) additionally, the IVol-based and IMD-based IMOM portfolios exhibit a better explanatory power to the IMOM portfolios with respect to other risk metrics; 4) finally, higher profitability of the IMOM as well as IVol-based and IMD-based IMOM portfolios is found to be related to upside market states, high levels of liquidity and high levels of investor sentiment. (Wei-Xing Zhou) 1 Literature regarding the momentum (contrarian) effect are abundant, and Asness et al. (2013) conduct the comprehensive research on crosssectional momentum effect.

COVID-19 Pandemic Initial Effects on the Idiosyncratic Risk in Latin America

“…For the variance, a GARCH (1,1) model with the dummy d23j addition as a regressor was used. The Peruvian IDR results, estimated with the stochastic terms adjusted to a Student`s t distribution with close to 5 degrees of freedom, are described in the expressions ( 26) and (27), and the metrics performance of estimates obtained are listed in (28). It must be highlighted that for the Brazilian and the emerging markets estimate the three dummy variables were used.…”

Similarity evidence between the country risk and the idiosyncratic risk: An empirical study of the Brazilian case

“…In the recent period of the world economy and as noted by Kalra (2008) with the North American subprime crisis, which started in the middle of 2007, and the decrease in the global market credit supply: the global economy and in capital markets, in particular, was out of control. Among the most recent studies that attempt to estimate idiosyncratic risk are Chang, Ko, Nakano, and Ghon Rhee (2018), with data from the Japanese economy, Shi and Zhou (2019), with data from the Chinese stock market, and Blitz, Hanauer, and Vidojevic (2020), which treats this risk as an anomaly, can be mentioned. Works related to sanitary crises or epidemics and pandemics that have occupied academic researchers with studies that seek to verify changes in the productive projects, in productive projects portfolios, in economic sectors, and national economies risk, should also be mentioned.…”