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The asymmetric effects of industry specific volatility in momentum returns

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  • Sina Badreddine
  • Ephraim Clark

Abstract

In this paper, we look specifically at the effect of industry volatility on momentum returns, a phenomenon that has been overlooked in previous studies. We find that industry volatility has asymmetric effects on the winner and loser portfolios. The cross‐sectional variation in the returns of high and low‐volatility winners is driven primarily by industry volatility. It disappears after controlling for the effect of industry volatility on total firm volatility. However, for firms in the loser portfolios, the differential return between high and low volatile stocks remains even after adjusting for industry volatility. This implies that momentum returns are mainly induced by industry specific news at the winners' level and firm‐specific factors at the losers' level. The results are robust even after controlling for different levels of liquidity.

Suggested Citation

  • Sina Badreddine & Ephraim Clark, 2021. "The asymmetric effects of industry specific volatility in momentum returns," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6444-6458, October.
    • Handle: RePEc:wly:ijfiec:v:26:y:2021:i:4:p:6444-6458
    DOI: 10.1002/ijfe.2130
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    Cited by:

    1. Xiaoyue Chen & Bin Li & Andrew C. Worthington, 2022. "Realised volatility and industry momentum returns," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-12, December.

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