Price Momentum and Idiosyncratic Volatility
We find that returns to momentum investing are higher among high idiosyncratic volatility ( IVol) stocks, especially high IVol losers. Higher IVol stocks also experience quicker and larger reversals. The findings are consistent with momentum profits being attributable to underreaction to firm-specific information and with IVol limiting arbitrage of the momentum effect. We also find a positive time-series relation between momentum returns and aggregate IVol. Given the long-term rise in IVol, this result helps explain the persistence of momentum profits since Jegadeesh and Titman's (1993) study. Copyright (c)2008, The Eastern Finance Association.
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Volume (Year): 43 (2008)
Issue (Month): 2 (05)
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