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The idiosyncratic momentum anomaly

Author

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  • Blitz, David
  • Hanauer, Matthias X.
  • Vidojevic, Milan

Abstract

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.

Suggested Citation

  • Blitz, David & Hanauer, Matthias X. & Vidojevic, Milan, 2020. "The idiosyncratic momentum anomaly," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 932-957.
    • Handle: RePEc:eee:reveco:v:69:y:2020:i:c:p:932-957
    DOI: 10.1016/j.iref.2020.05.008
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    Cited by:

    1. Song, Jian & Balvers, Ronald J., 2022. "Seasonality and momentum across national equity markets," The North American Journal of Economics and Finance, Elsevier, vol. 61(C).
    2. Dierkes, Maik & Krupski, Jan, 2022. "Isolating momentum crashes," Journal of Empirical Finance, Elsevier, vol. 66(C), pages 1-22.
    3. Shi, Huai-Long & Zhou, Wei-Xing, 2021. "Horse race of weekly idiosyncratic momentum strategies with respect to various risk metrics: Evidence from the Chinese stock market," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    4. Lin, Qi, 2022. "Understanding idiosyncratic momentum in the Chinese stock market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 76(C).
    5. Yao, Shouyu & Qin, Yuanyuan & Cheng, Feiyang & Wu, Ji(George) & Goodell, John.W., 2022. "Missing momentum in China: Considering individual investor preference," Finance Research Letters, Elsevier, vol. 49(C).
    6. Czapkiewicz, Anna & Wójtowicz, Tomasz & Zaremba, Adam, 2023. "Idiosyncratic risk and cross-section of stock returns in emerging European markets," Economic Modelling, Elsevier, vol. 124(C).
    7. Simarjeet Singh & Nidhi Walia, 2022. "Momentum investing: a systematic literature review and bibliometric analysis," Management Review Quarterly, Springer, vol. 72(1), pages 87-113, February.
    8. Shi, Huai-Long & Chen, Huayi, 2024. "Understanding co-movements based on heterogeneous information associations," International Review of Financial Analysis, Elsevier, vol. 94(C).
    9. Iwanaga, Yasuhiro, 2024. "Revisiting the residual momentum in Japan," International Review of Financial Analysis, Elsevier, vol. 93(C).
    10. Andre Assis de Salles, 2021. "COVID-19 Pandemic Initial Effects on the Idiosyncratic Risk in Latin America," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 16(3), pages 1-21, Julio - S.
    11. Berggrun, Luis & Cardona, Emilio & Lizarzaburu, Edmundo, 2023. "Industry momentum in Latin America," Journal of Business Research, Elsevier, vol. 158(C).
    12. Simarjeet Singh & Nidhi Walia & Sivagandhi Saravanan & Preeti Jain & Avtar Singh & Jinesh jain, 2021. "Mapping the scientific research on alternative momentum investing: a bibliometric analysis," Journal of Economic and Administrative Sciences, Emerald Group Publishing Limited, vol. 38(4), pages 619-636, April.
    13. Cakici, Nusret & Zaremba, Adam & Bianchi, Robert J. & Pham, Nga, 2021. "False discoveries in the anomaly research: New insights from the Stock Exchange of Melbourne (1927–1987)," Pacific-Basin Finance Journal, Elsevier, vol. 70(C).
    14. Li, Yan & Liang, Chao & L.D. Huynh, Toan, 2022. "A new momentum measurement in the Chinese stock market," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    15. Simarjeet Singh & Nidhi Walia & Stelios Bekiros & Arushi Gupta & Jigyasu Kumar & Amar Kumar Mishra, 2022. "Risk-managed time-series momentum: an emerging economy experience," Journal of Economics, Finance and Administrative Science, Emerald Group Publishing Limited, vol. 27(54), pages 328-343, November.
    16. Hanauer, Matthias X. & Windmüller, Steffen, 2023. "Enhanced momentum strategies," Journal of Banking & Finance, Elsevier, vol. 148(C).

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    More about this item

    Keywords

    Asset pricing; Idiosyncratic momentum; Momentum crashes; Risk management;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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