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Unsystematic Risk Explanation to Momentum Profits in Taiwan

Author

Listed:
  • Ching-Ping Wang

    (Economics, and Business Decision, National Kaohsiung University of Applied Sciences, No. 415, Jiangong Rd., Sanmin District, Kaohsiung City 80778, Taiwan)

  • Hung-Hsi Huang

    (National Chiayi University, No. 580, Sinmin Rd., Chiayi City 91201, Taiwan)

  • Kai-Jei Tu

    (National Pingtung University of Science and Technology, No. 1, Hseuhfu Rd., Neipu, Pingtung 91201, Taiwan)

Abstract

This study investigates the momentum profits and provides a systematic risk as well as time-varying unsystematic risk explanation, adopting the monthly returns in the Taiwan stock market during 2003–2008 periods. Through the regression models including and combining the CAPM, Fama–French three factor model, GARCH(1,1)-M and TGARCH(1,1)-M, the main results are as follows. First, most of the momentum strategies have not significant positive returns. Next, CAPM as well as Fama and French factors could roughly explain momentum returns. Additionally, it may make some profits likely if the time-varying unsystematic risk is further considered in an investment strategy. Moreover, the return volatility for the portfolio of winners is more sensitive to recent news than the losers. Conversely, the return volatility of the loser is more sensitive to distant news and has a larger response to bad news than the winner. Finally, TGARCH-M related models usually perform better than GARCH-M ones; this infers the presence of leverage effect in Taiwan stock market.

Suggested Citation

  • Ching-Ping Wang & Hung-Hsi Huang & Kai-Jei Tu, 2012. "Unsystematic Risk Explanation to Momentum Profits in Taiwan," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 15(01), pages 1-29.
    • Handle: RePEc:wsi:rpbfmp:v:15:y:2012:i:01:n:s0219091511500056
    DOI: 10.1142/S0219091511500056
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    Citations

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    Cited by:

    1. zakaria, nor amalina, 2017. "Performance and Risk: Empirical Evidence from Wah Seong Corporation Berhad," MPRA Paper 78565, University Library of Munich, Germany.
    2. Mostafa Saidur Rahim Khan, 2017. "Market States and Momentum: Evidence from the Dhaka Stock Exchange," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 20(02), pages 1-19, June.
    3. Yew-Choe Lum & Sardar M. N. Islam, 2016. "Time Varying Behavior of Share Returns in Australia: 1988–2004," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(01), pages 1-14, March.
    4. Houda BenMabrouk & Ismahen Souayeh, 2021. "Momentum profits: Fundamentals or time varying unsystematic risk," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 777-789, January.
    5. Debarati Bhattacharya & Wei-Hsien Li & Gokhan Sonaer, 2017. "Has momentum lost its momentum?," Review of Quantitative Finance and Accounting, Springer, vol. 48(1), pages 191-218, January.
    6. Jungshik Hur & Vivek Singh, 2016. "Reexamining momentum profits: Underreaction or overreaction to firm-specific information?," Review of Quantitative Finance and Accounting, Springer, vol. 46(2), pages 261-289, February.

    More about this item

    Keywords

    Momentum strategy; unsystematic risk; TGARCH;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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