The Idiosyncratic Momentum Anomaly
60 Pages Posted: 5 Apr 2017 Last revised: 8 Apr 2020
Date Written: April 7, 2020
This paper seeks to uncover the drivers of the idiosyncratic momentum anomaly. We show that: (I) idiosyncratic momentum is a distinct phenomenon that exists next to conventional momentum and is not explained by it; (ii) idiosyncratic momentum is priced in the cross-section of stock returns after controlling for established and recently proposed asset pricing factors, including the ones that explain a host of momentum-related anomalies; (iii) some of the prominent explanations for the momentum premium, such as crash risk, and investor overconfidence and overreaction linked to market states and dynamics cannot explain idiosyncratic momentum profits; (iv) long-term return dynamics of idiosyncratic momentum support the underreaction hypothesis for its existence; (v) idiosyncratic momentum generates robust returns across a range of developed and emerging markets.
Keywords: asset pricing, idiosyncratic momentum, momentum crashes, risk management
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation