Price Momentum and Idiosyncratic Volatility

32 Pages Posted: 2 Apr 2008

See all articles by Matteo P. Arena

Matteo P. Arena

Marquette University

K. Stephen Haggard

Missouri State University

Xuemin Sterling Yan

University of Missouri - Columbia

Abstract

We find that returns to momentum investing are higher among high idiosyncratic volatility (IVol) stocks, especially high IVol losers. Higher IVol stocks also experience quicker and larger reversals. The findings are consistent with momentum profits being attributable to underreaction to firm-specific information and with IVol limiting arbitrage of the momentum effect. We also find a positive time-series relation between momentum returns and aggregate IVol. Given the long-term rise in IVol, this result helps explain the persistence of momentum profits since Jegadeesh and Titman's (1993) study.

Suggested Citation

Arena, Matteo P. and Haggard, K. Stephen and Yan, Xuemin Sterling, Price Momentum and Idiosyncratic Volatility. Financial Review, Vol. 43, No. 2, pp. 159-190, May 2008. Available at SSRN: https://ssrn.com/abstract=1115527 or http://dx.doi.org/10.1111/j.1540-6288.2008.00190.x

Matteo P. Arena

Marquette University ( email )

College of Business Administration
P.O. Box 1881
Milwaukee, WI 53201-1881
United States

K. Stephen Haggard

Missouri State University

United States

Xuemin Sterling Yan (Contact Author)

University of Missouri - Columbia ( email )

Robert J. Trulaske Sr. College of Business
427 Cornell Hall
Columbia, MO 65211-2600
United States
573-884-9708 (Phone)
573-884-6296 (Fax)

HOME PAGE: http://business.missouri.edu/yanx/

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