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

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  • Qi Lin

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 firm‐level idiosyncratic momentum effect cannot extend to the aggregate stock market.

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  • Qi Lin, 2020. "Idiosyncratic momentum and the cross‐section of stock returns: Further evidence," European Financial Management, European Financial Management Association, vol. 26(3), pages 579-627, June.
    • Handle: RePEc:bla:eufman:v:26:y:2020:i:3:p:579-627
    DOI: 10.1111/eufm.12247
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