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Understanding idiosyncratic momentum in the Chinese stock market

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  • Lin, Qi

Abstract

In this paper, we revisit the idiosyncratic momentum pattern in the Chinese stock market. We show that idiosyncratic momentum strategies constructed to hedge out the risk exposures to eight popular multifactor models remain profitable. Importantly, a PLS-based idiosyncratic momentum strategy that aggregates the information contained in various idiosyncratic momentum measures consistently produces substantial profits in the cross-sectional pricing at the portfolio and individual stock levels. Furthermore, the PLS-based idiosyncratic momentum factor is helpful in explaining the cross-section of expected returns and can be rationalized in the context of Merton’s (1973) intertemporal CAPM (ICAPM) theory.

Suggested Citation

  • Lin, Qi, 2022. "Understanding idiosyncratic momentum in the Chinese stock market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:intfin:v:76:y:2022:i:c:s104244312100175x
    DOI: 10.1016/j.intfin.2021.101469
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    More about this item

    Keywords

    Idiosyncratic momentum; PLS estimation; Asset pricing; Intertemporal CAPM; Chinese market;
    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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